Meaning and contents: Cost sheet is a document which provides for the assembly of the estimated detailed cost in respect of a cost centre or a cost unit. It analyses and classifies in a tabular form the expenses on different items for a particular period. Additional columns may also be provided to show the cost per unit pertaining to each item of expenditure and the total per unit cost. Variations of stock are also recorded and proper adjustments made to arrive at the correct figures of raw materials consumed and the cost of goods sold.
Cost sheet may also depict data for the preceding period alongwith the data for the present period so as to have a quick appraisal of trends and tendencies in a cost sheet for a comparative study. It may also be prepared for making inter-firm comparison by including cost data of different firms. Such a single statement will facilitate inter-firm comparison of costs for taking decision about the policy formulation in the event of market competitions.
Cost sheet may be prepared on the basis of actual data or on the basis of estimated data depending on the technique of costing employed and the purpose to be achieved.
Historical cost sheet: Such a cost sheet is prepared periodically after the costs have been incurred. The period may be a year, half-year, a quarter or a month. Actual costs are compiled and presented through such a cost statement. Comparisons can be made and decisions taken for cost control effectively if statements are prepared frequently.
Estimated cost sheet: Such a cost sheet is prepared before the actual commencement of production. The estimating process is repeated at regular intervals. Estimated cost sheets may be prepared on a half-yearly, quarterly or monthly basis. The estimated costs are compared with the actual costs every time whenever estimates are prepared so that costs can be controlled effectively since the ultimate aim of adoption of estimated costing technique is effective cost control. Costs are predetermined having regard to the present conditions and the circumstances likely to prevail in future, besides the past performances.
Ascertain of future costs and making comparisons with past records help the management in fixing up the selling prices of the products. Several important decisions can be taken by the management regarding profit planning, production and marketing strategy etc.
Estimation of different elements of cost has to be carefully made. Direct material cost is generally estimated on the basis of per unit cost of a preceding period subject to any fluctuations in market prices for estimated output of the future period. A similar pattern is adopted for estimating direct labour cost taking into account any proposed increase in wage rates. Overheads are estimated on the basis of past experience and current trends and then absorbed on a suitable basis.
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