ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Preparation of Cost Sheet

Updated on February 14, 2013


Cost determination requires maintenance of a separate set of books to record all the transaction relating to costs. The object of costing is to ascertain the cost control and cost educations and to assist the management in framing out policies. The classification of accounts as Personal, Real and Nominal under Financial Accounts is not sufficient for achieving the above objects. The classification of accounts mainly depends on the needs of the organisation in small concern a simple classification by basic elements of cost may be sufficient. But in large concerns, activities are to be grouped into cost centres, and cost for each cost centre is to be ascertained. The nature of product and methods of production have a direct influence on the classification and accounting of costs

Cost Unit

"A cost unit is a unit of product, service or item in relation to which costs may be ascertained or expressed."

Considerable thought must be given to the selection of cost units. Since costing is measuring the unit measurement must be clearly defined and selected before the process of cost finding can be started. The forms of measurement used as cost units are number, length, area, volume, weight, time and value. The units should be natural to the nature of business operations. For example the coal is to be measured by the tonne, and cloth by metre.

In non-manufacturing operations, it is difficult to decide a suitable cost unit. A transport contractor may decide to relate his costs to weight carried e.g., per tonne. This is certainly a cost unit, but it is not a logical one since it does not consider the distance factor which influences cost to a great extent. A more appropriate and accurate unit would therefore be tonne- kilometres.

Cost Centre

The determination of a suitable cost centre as well as analysis of cost under cost centre is very helpful for periodical comparison and control of costs. The person in charge of a cost centre is held responsible for control of cost of his centre. This size and number of cost centres vary from concern to concern and largely depend on the amount of expenditure and management requirements of cost control.



Each element of cost is now examined in detail :-

1. Direct materials cost

Materials cost which can be identified with and allocated to cost centres or cost units. The following are the examples of direct materials

a) Materials, including component parts, specially purchased for a particular job,
order or process.

b) Materials passing from one operation or process to another.

c) Primary packing materials such as cartons, cardboard boxes etc.

The following terms are used in the same sense as direct material cost prime cost material; process material; production material, requisitioned material.

2. Direct wages

Wages (labour cost) which can be identified with and allocated to cost centres or cost units. Payment of the following groups of labour fall within the definition of direct wages.

a) Labour engaged in altering the condition, confirmation and composition of the

b) Inspectors, analysis, etc., specifically required for such production.

c) The wages of foremen, charge hands, shop clerks' the wages of internal transport personnel etc.,

The following terms are used in the same sense as direct wages direct labour; prime cost labour; process labour, cost; operating labour cost.

3. Direct expenses

Expenses which can be identified with and allocated to cost centres of cost units. The following group of expenses fall within the definition of direct expenses:

a) Cost of special designs, drawings or layout.

h) Hire of special tools or equipments for a particular job. c) Maintenance costs of such tools and equipments.

The following terms are used in the same sense as direct expenses.

4. Prime cost

Chargeable process expenses; productive expenses; prime cost expenses.

5. Production cost

The cost of the sequence operations which begins with supplying materials, labour and services and ends with primary packing of the product.

The following groups of indirect items fall within the category to production expenses

a) Indirect material

b) Indirect wages and

c) Indirect expenses

The following items are used in the same sense as Production overhead. Factory overhead, Works overhead, Factory on-cost. Works on-cost.

6. Administrative Overhead

Administrative overhead includes all indirect materials cost indirect wages and indirect expenses incurred in the direction, control and administration of an undertaking.

The following groups of indirect items fall within the definition of administration overhead.

a) Cost of indirect materials such as stationery.

b) Indirect wages such as office salaries including salaries of administrative directors, secretaries accountants etc.

c) Indirect expenses such as rent, rates and insurance of general offices; lighting,heating and cleaning of general offices; bank charges; depreciation and repairs of office buildings and equipments; legal charges, audit fees etc.


    0 of 8192 characters used
    Post Comment

    • profile image


      4 years ago

      So much help full. ...


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)