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CA Intermediate - Cost & Management

Accounting (Version 3) Notes

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1 BASIC COST CONCEPTS

I. MEANING OF COST
 The monetary value of all sacrifices made to achieve an objective. (i.e. to produce goods and
services).
 Cost refers to the expenditure incurred in producing a product or in rendering a service.
 It is expressed from the producer or manufacturer‟s viewpoint. (not from consumer‟s
viewpoint).

II. DEFINITIONS
'Costing' is defined as - “The techniques and processes of ascertaining costs”.
Cost Accounting' is the classifying, recording and appropriate allocation of expenditure for the
determination of the costs of the product or services".
‘Cost Accountancy' is defined as “The application of costing and cost accounting principles,
methods and techniques to the science, art and practice of cost control, and the ascertainment of
profitability. It includes the presentation of information derived there from for the purpose of
managerial decision-making”.
'Management Accounting' is defined by CIMA as "Management Accounting is the application of
the principles of accounting and financial management to create, protect, preserve and increase
value of the stakeholders of for-profit and not-for-profit enterprises in the public and private
sectors."
'Cost Management' - It is an application of management accounting concepts, methods of
collections, analysis and presentation of data to provide the information needed to plan, monitor
and control costs.
Inception - It started as a branch of financial accounting but developed soon as a specialised
field distinct from financial accounting. The limitations of Financial Accounting gave birth to the
Cost Accounting Methods and Techniques.
For example - Financial records revealed that the total profit made during the financial year is Rs.
50,000/- which is 20% of sales i.e. Rs. 2,50,000/-. It is a good performance. But the cost records
revealed the following facts.
Products A B C Total
Rs. Rs. Rs. Rs.
Sales 1,25,000 75,000 50,000 2,50,000
Costs 1,30,000 50,000 20,000 2,00,000
Profit / (Loss) (5,000) 25,000 30,000 50,000
% of profit / (Loss) to sales (4%) 33.33% 60% 20%

The above example clearly explains the importance and need of cost accounting as a separate
branch from financial accounting.

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III. OBJECTIVES OF COST ACCOUNTING

Following are the basic objectives of Costing :
1. Cost Ascertainment – This involves collection of cost information, by recording them under
suitable heads of account and reporting such information on a periodical basis. It simply
means calculation of cost. Cost calculation also helps in ascertainment of profit.
2. Cost Estimation : In many business situations, we need to quote a price to the customer
before accepting his order. In such case you need to first estimate the cost and then add
profit to provide the price quotation to the customer.
3. Cost Control : Cost has an inherent tendency to go up, hence cost control becomes a very
important feature of Cost Accounting. Cost accounting provides data for comparison
between standard cost and actual cost to note down the variances. This variance analysis
helps us in doing cost control. We will study this in the chapter of 'Standard Costing'.
4. Assisting management in decision-making : Business decisions are taken after
conducting Cost-Benefit Analysis. Hence cost and benefits of each option are analysed and
the Manager chooses the least cost option. Thus cost accounting and reporting system assist
managers in their decision making process. We will study this in the chapter of 'Marginal
Costing'.
5. Determination of Selling Price and Profitability : the cost accounting system helps in
determination of selling price and thus profitability of a cost object. Though in a competitive
business environment, selling prices are determined by external factors but cost accounting
system provides a basis for price fixation and rate negotiation.
6. Cost Reduction : It is defined as the achievement of real and permanent reduction in the
unit cost of goods manufactured or services rendered, without affecting its utility and quality.
By conducting continuous research and study, we can find better ways to do the things at a
lower cost, which helps in cost reduction.

IV. Elements of Cost:

Basically there are three elements of costs -
1. Material Cost : It is the cost of tangible items, which gets consumed in the process of
manufacture.
2. Labour Cost : It is the cost of human efforts i.e. manpower cost. E.g. salary & wages paid
to employees.
3. Expenses : It is the cost, which is neither material nor labour. E.g. rent, electricity,
depreciation etc.
These cost elements can be further divided into as :
Direct Material Indirect Material
+ Direct Labour + Indirect Labour
+ Direct Expenses + Indirect Expenses
Prime Cost + Overheads = Total Cost

In practice, however, the elements of costs are better known as –

1. Material Cost
2. Labour Cost and
3. Overheads Cost
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V. DIFFERENT METHODS OF COSTING :

Job Costing - In this case each job is treated as distinct from other and the cost of each job is
calculated separately. e.g. Scooter Servicing, fabrication workshop, furniture manufacturing, etc.
Batch Costing - It is a variation of job costing. A batch is considered as a job and the cost of
each batch is calculated separately. e.g., Pharmaceutical Companies, toothpastes, spare parts
etc.
Contract Costing - It is another variation of job costing, but the job is of a big size relating to civil
construction or mechanical erection etc. and involves a longer period to complete. Say more than
a year. e.g. Construction of Bridges, Dams, Housing Complexes, Road Building, etc.
Process Costing/Operation Costing - This method is applied where different processes are
involved in a sequence to manufacture a particular product. Cost for each such process is
required to be calculated separately. e.g., Sugar factories, paper industries, cement industry etc.
It gets connected to Joint Product & By-Product Costing for multiple products.
Unit/Single/Output Costing - This method is applied where a continuous production of
identical items is done. e.g., News paper Printing, Electricity generation, coal mining etc. This is
the simplest form of costing method.
Operating Costing - It is applied to service industries like transportation of goods & passengers,
hospitals, hotels, health clubs and other service centers.
Multiple Costing - A combination of above different methods of costing may be used as per the
need and suitability of the organisation. It is called as " Multiple Costing". It is not a separate
method of costing but use of a combination of different methods of costing.

VI. DIFFERENT CLASSIFICATION OF COSTS

Time based
 Historical
Payment based  Current
 Explicit  Budgeted Controllability based
 Implicit  Controllable
 Non-controllable

Elements based Normality based

 Materials  Normal
 Labour  Abnormal
 Expenses

Function based COST Association based

 Period
,,,

 Production
 Administration  Product
 Selling
 Distribution
 R&D Decision making based
 Conversion
 Pre-production Nature based  Relevant
 Variable  Irrelevant
 Fixed
 Semi-variable

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1. Historical costs : Costs relating to the past time period; cost which has already been
incurred.
2. Current costs : Cost relating to the present period.
3. Budgeted Costs : Costs relating to the future period; Cost which is computed in advance, on
the basis of specification of all factors affecting it.
4. Controllable Costs : Cost which can be influenced and controlled by managerial action.
These are also known as avoidable cost or discretionary cost etc.
5. Non-Controllable costs : These are costs that cannot be influenced and controlled by
managerial decisions. These are also known as unavoidable costs or non discretionary
costs etc.
6. Normal Cost : Costs which can be reasonably expected to be incurred under normal, routine
and regular operating conditions.
7. Abnormal Cost : Costs over and above normal cost; which is not incurred under normal
operating conditions e.g. fines and penalties, goods lost due to fire, repairs cost due to major
machine breakdown etc.
8. Period Cost : These are costs which are not assigned to the products but are charged as
expenses against the revenue of the period in which they are incurred. These costs vary
according to period of time and not according to the number of units produced. Thus, they
are fixed costs e.g. factory rent, fixed salary of office staff, insurance charges etc.
9. Product Cost : These are costs which will change according to number of units produced.
These costs are associated with the product we manufacture and not the period. These are
also known as variable costs e.g. direct material, direct labour etc. It can be called as the
cost associated with the acquisition and conversion of material into finished product. It is
also known as Engineered Cost.
10. Engineered Cost : These are the costs that result specifically from a clear cause and effect
relationship between inputs and outputs. The relationship is usually personally observable.
Examples of inputs are direct material cost, direct labour cost etc. (In my opinion, it is similar
to Product Cost).
11. Relevant Costs : Costs which are relevant for decision making i.e. avoidable cost or
discretionary cost.
12. Irrelevant Costs : Costs which are irrelevant for decision making i.e. unavoidable cost or
non-discretionary cost.
13. Variable Costs : These are costs which tend to vary or change in relation to volume of
production. They increase in total as production increases and vice-versa e.g. cost of raw
materials, direct wages etc. However, variable costs per unit are generally constant for every
unit of the additional output.
14. Fixed Costs : These are costs which remain constant at various levels of production. They
are not affected by volume of production e.g. Factory Rent, Insurance etc. Fixed Costs per
unit vary inversely with volume of production, i.e. if production increases, fixed cost per unit
decreases and vice-versa. Sometimes, these are also known as Capacity costs or Period
Costs.
15. Semi-variable Costs : These are costs which are partly fixed and partly variable. These are
fixed upto a particular volume of production and become variable thereafter for the next level
of production. Some examples are Repairs and Maintenance cost, Electricity bills, Telephone
bills etc.
16. Production Cost : It is the costs related to manufacturing activities. Thus it is equal to the
total of Direct Materials, Direct Labour, Direct Expenses and Production Overheads.

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17. Administration Cost : The cost of formulating the policy, directing the organisation and
controlling the operations of the undertaking, which is not directly related to production,
selling distribution, research or development activity or function. Some examples are Office
Rent, Accounts Department Expenses, Audit and Legal Expenses, Directors Remuneration,
Printing & Stationery, Telephone & Postage etc.
18. Selling Cost : It is the cost of generating demand. These are sometimes called marketing
costs. Some examples are Advertisement, Salesmen remuneration, Show-room Expenses,
Cost of samples etc.
19. Distribution Cost : It is the cost of satisfying the demand. Some examples are : secondary
packing of goods for the convenience of material handling and transportation, carriage
outwards, maintenance of delivery vans, expenditure incurred in transporting articles to
central or local storage, expenditure incurred in moving articles to and from prospective
customers (as in Sale or Return) etc.
20. Research Cost : The cost of researching for new or improved products, new applications of
materials or improved methods.
21. Development Cost : The cost of the process which begins with the implementation of the
decision to produce a new or improved product, or to employ a new or improved method and
ends with commencement of formal production of that product or by that method.
22. Conversion Cost : It is the cost required to convert raw material into finished goods.
Conversion cost = Direct labour + Factory overheads.
23. Pre-production Cost : It is the cost incurred before starting actual commercial production.
For example, cost incurred in making a trial production run, cost of moulds & designs, cost of
training the workers etc.
24. Materials : Cost of tangible, physical input used in relation to output / production, e.g., cost of
raw materials, consumable stores, maintenance items etc.
25. Labour : Cost incurred in relation to human resources of the enterprise; e.g. wages to
workers, Salary to Office Staff, Training Expenses etc.
26. Expenses : Cost of operating and running the enterprise, other than materials and labour;
they are the residual category of costs. E.g. Factory Rent, Office Maintenance, Depreciation,
Electricity etc.
27. Direct Costs : Costs which are directly related to / identified with / attributable to a cost
object or a Cost unit. E.g. Cost of basic raw material used in the finished product, wages paid
to site labour in a contract etc. In simple words, it is a specific cost.
28. Indirect Costs : Costs which are not directly identified with a cost object or a cost unit. Such
costs are apportioned over different cost centers using appropriate basis. E.g., Factory Rent
incurred over various departments; Salary of supervisor engaged in overseeing various
construction contracts etc. In other words, it is a common cost.

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DISTINGUISH BETWEEN EXPLICIT AND IMPLICIT COST :

Particulars Explicit Costs Implicit Costs

Meaning Costs which involve cash payment. Cost which do not involve cash
payment.

Otherwise Out of pocket cost / Actual cost Opportunity costs / Notional costs /
known as Imputed cost / Hidden Cost

Measurement These are actually incurred and They are not actually incurred. They
hence can be easily and objectively cannot be easily measured and involves
measured. a subjective estimation.

Recording in These are recorded in the books of These are not recorded in the books of
books of accounts. accounts.
accounts

Purpose Accounting, Reporting, Cost Used only in Decision Making.

Control & Decision Making

Examples Actual rent paid, Salaries of staff, Interest on own capital, rent of own
Advertisement etc. premises, salary of proprietor etc.

VII. TECHNIQUES OF COSTING :

1. Marginal Costing : This technique is popularly used for managerial decision making. This
technique recognises the division of cost as variable cost and fixed cost only. It is used to
ascertain the effect of changes in volume on cost and profit.
2. Standard Costing : It is a technique whereby, standard costs and revenues are pre-
determined and later on compared with actual costs and revenues. The difference between
standard cost and actual cost is known as 'Variance' i.e. difference. These variances are
analysed for its possible causes to take corrective actions for future. Standard costing is
extremely helpful for cost control and is generally used along with budgetary control.
3. Budgets & Budgetary Control : This technique involves preparation of budgets and use of
budgets in proper planning and overall managerial control of the organisation.
4. Uniform Costing : When a number of firms in an industry agree among themselves to follow
the same system of costing in detail, adopting common terminology for various items and
processes, then they are said to follow a system of uniform costing. It helps in better
comparison of cost between different firms belonging to the same industry. The average
data of the entire industry is also useful to the Government for various purposes.
5. Historical Costing : It is the ascertainment of cost, after they have been incurred. Simply
speaking, it is the accounting of past cost i.e. historical cost.
6. Absorption Costing : It is the practice of charging all costs i.e. variable and fixed cost to the
cost object i.e. goods and services. It is different from Marginal Costing, where only variable
cost is charged to the cost object. (Note : We will study it in detail, in the chapter of Marginal
Costing ahead).

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VIII. VARIOUS COST CONCEPTS :

1. Responsibility Centres : As an organisation grows, its functions, organisational structure
and other related functions also grow in terms of volume and complexity. To have a better
control over the organisation, management delegates its responsibility and authority to
various departments or persons. These departments or persons are known as responsibility
centres. They are held responsible for performance in terms of expenditure (cost centre),
revenue (revenue centre), profitability (profit centre) and return on investment (investment
centre). Performance of these responsibility centres are measured against some set
standards or goals of the organisation. There are following four types of responsibility
centres :
a. Cost Centre : A centre for which a standard / budgeted amount of cost is pre-determined
and used for cost control. Cost centres are of two types : (i) Standard Cost Centre : It is
a cost centre where input-output relationship is clear and measureable. Hence, these
cost centres are used for variance analysis purpose and the manager is held responsible
for adverse cost variances. (ii) Discretionary Cost Centre : It is a cost centre where
input-output relationship is not clear and the output is not measureable. Hence, the
actual cost is compared with the budgeted cost for an activity. For example, R&D
department, Advertisement department, Accounts department etc.
b. Revenue Centre : This centre is mainly responsible for generation of revenue for the
company. The performance of this centre is evaluated by comparing actual revenue with
budgeted revenue. For example, Sales department.
c. Profit Centre : These are the responsibility centres which have the responsibility of both
i.e. generation of revenue and cost incurred. Since, the managers of profit centre are
responsible for cost as well as revenue both, their performance is measured on the basis
of profitability. For example, decentralised branches of an organisation.
d. Investment Centre : These are the responsibility centres which are not only responsible
for profitability but also have the authority to make capital investment decisions. The
performance of these responsibility centres are measured on the basis of Return on
Investment (ROI). For example, Maharatna, Navratna and Miniratna companies of
Central Government.

2. Cost Unit : Cost unit is a unit of measurement in which cost may be ascertained. Following
are some of the examples –

Product / Service Cost Unit Product / Service Cost Unit

Soaps Number / Carton Brickworks Per 1000 brick
Wire / Cable Meter / Kilometer Building Square foot
Dairy (Milk) Litre / Bag Cement Tonne
Goods transport Tonne kilometer Power Kilowatt hour (KWH)
Passenger transport Passenger kilometer Paper Rim
Wood / Gas Cubic Feet (cft) Textiles Meters
Food grains Kg. / Quintal / Tonne Road contractors Per mile / kilometer
Sugar Per Tonne Bicycle Number
Hospital Per patient day Pharmaceuticals 1000 tablets
Automobile Per vehicle Steel Tonne

3. Replacement Cost : It is the current market cost of replacing an asset or material.

4. Sunk Cost : The costs which have already been incurred in the past (i.e. historical costs)
and will not require current cash expenditure are called as sunk costs.
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5. Shut down cost : It is the cost which is incurred even when the plant is temporarily shut
down. In short, it is an unavoidable fixed cost.
6. Conversion Cost : It refers to direct wages, direct expenses and factory overhead costs for
converting raw materials to the finished stage or for converting a material from one stage of
production to the other.
7. Marginal Cost : Marginal cost is the total variable cost i.e. prime cost plus variable
overheads. It is assumed that variable cost varies directly with production whereas fixed cost
remains fixed irrespective of volume of production. Marginal cost is a relevant cost for
decision making as this cost will be incurred in future for additional units of production.
8. Direct Expenses : These are expenses which can be allocated directly to jobs, products,
processes, cost centres or cost units. According to CIMA, London, Direct Expenses are „cost
other than material and wages which are incurred for a specific product or saleable services‟.
These are also known as Chargeable Expenses.
Nature of Direct Expenses :
 These are expenses other than Direct Materials and Direct Labour.
 These are either allocated or charged completely to cost centers or cost units.
 These are included in the Prime cost of a product.
Examples :
a. Hire charges of special machinery or plant for a particular production order or job.
b. Payment of royalties.
c. Cost of special moulds, designs and patterns.
d. Experimental cost before undertaking the concerned job.
e. Travelling and conveyance expenses incurred in connection with a particular job.
f. Sub-contracting expenses or outside work costs, where jobs are sent out for special
processing.

IX. COMPARATIVE ANALYSIS BETWEEN COST, PRICE AND VALUE :

Particulars Cost Price Value

Meaning Expenditure incurred in It is the sales price Relative Worth of a
producing a product or charged by the seller of commodity to an
in rendering a service. goods or services to the individual at a particular
buyer. point of time.
Ascertained Producer‟s viewpoint Seller‟s viewpoint User‟s viewpoint
from
Differentiation Ascertained on the basis It is policy decision of Different persons attach
/ Subjectivity of uniform principles. the management to fix different values to a
Hence it is objectively the sales price of the product at different
determined. product or services. points of time.
They may also change
the price from time to
time.
Inference Fact Policy Opinion

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X. IMPORTANCE AND ADVANTAGES OF COST ACCOUNTING

1. A cost system identifies unprofitable activities, losses or inefficiencies such as wastage of
manpower in the form of idle time, wastage of material in the form of spoilage, scrap or
wastage of resources in the form of inadequate utilization of plant & machinery,
production or service facilities, etc.
2. Cost accounting locates the causes for decrease or increase in the profit or loss by
identifying unprofitable products or product lines.
3. Cost accounts furnish suitable data and information to the management for decision
making such as make or buy, continue or shut down, product mix, to sell below cost or
not, accept or reject etc.
4. It helps management to fix the selling price and to furnish quotations / tenders.
5. Application of Standard Costing & Budgetary Control techniques help management to
achieve optimum level of efficiency and control cost.
6. Variance analysis locates the areas of inefficiencies which require managerial attention.
Thus, saving time and energy through management by exception.
7. Determination of Cost Centers helps management to define and fix responsibilities upon
individuals.
8. Cost of closing stock of raw materials, work-in-progress and finished goods can be easily
obtained from cost records and used in the financial accounting to determine the
quantum of profit or loss of the business.

XI. INSTALLATION OF A COST SYSTEM :

There is no one readymade cost system, which is suitable for all types of businesses. Therefore
a cost system has to be specially designed for an undertaking to meet its specific needs. Before
installing a cost system proper care should be taken to study all aspects involved and the needs
of the business, otherwise the system will be a misfit and full advantage may not be derived from
it.

The following points should be considered before installing a cost system:

i. The nature, method and stages of production, the number of varieties, quantity of each
product and such other technical aspects as necessary to design a costing system.
ii. The size, layout and organisation of the factory or service unit.
iii. The existing methods and procedures of purchase, receipts, storage and issue of materials.
iv. Method of maintenance of records i.e. whether the cost records will be integrated with
financial records or not.
v. The needs and requirements of management with the view to control costs.
vi. Statutory compliances and audit to be accommodated in the system.
vii. The system should get synchronized with other existing accounting and reporting systems.
So that the data and information needs of other departments are also fulfilled by the cost
system.
viii. Willingness and co-operation of the staff and workers, etc.

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Essentials of a Good Costing System:

1. It must be informative and simple.
2. It should be accurate and authentic.
3. It should involve minimum clerical work and expenditure.
4. It should fulfill the requirements and needs of management for cost control and decision
making.
5. It should be flexible and adaptive to take care of any changes, expansion or modernization
without much difficulty and cost.
6. The cost accounting system should be integrated with other systems like financial
accounting, taxation, legal compliance etc.
7. Uniformity and consistency - There should be a uniformity and consistency in classification,
treatment and reporting of cost data and related information. This is required for
comparability of results within the organisation and outside the organisation.
8. Trust on the system - Management should have trust on the system and its output. For this,
an active role of management is required for the development of such a system that reflects
a strong conviction in using information for decision making.

XII. DIFFERENCE BETWEEN COST ACCOUNTING & FINANCIAL ACCOUNTING:

SN Particulars Cost Accounting Financial Accounting

1. Definition It is the application of costing and It is the art of recording, classifying

cost accounting principles, and summarizing in a significant
methods & techniques to the manner and in terms of money,
science, art and practice of cost transactions and events which are,
control and the ascertainment of in part atleast of a financial
profitability. It includes the character and interpreting the
presentation of information derived results thereof.
therefrom for the purpose of
managerial decision making.
2. Details It provides financial analysis of the It gives financial picture and the
Provided business affairs product wise, state of affairs of a business in
service wise, element wise, or totality.
activity wise.
3. Users of It renders information for the It safeguards the interests of the
Information guidance of management, proper business, its properties and other
planning, operation control and concerned like creditors,
decision making. shareholders, tax authorities.
4. Main The main object is to ascertain the The main object is to ascertain
Objective correct cost of production / correct profit / loss position and to
Services. give a true and fair view of the
state of affair of business.
5. Time Period It is future oriented activity. It is a post – mortem activity.
6. Usefulness It forms the basis for managerial It forms the basis for fulfilling the
decision making like make or buy, legal requirements like Income-tax
continue or shutdown, product mix, Act, Companies Act, Excise &
etc. Customs Act, etc.
7. Final Output The final output is in the form of a The final output is in the form of
Cost-Sheet. Profit and Loss A/c and Balance
Sheet.

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SN Particulars Cost Accounting Financial Accounting

8. Objective Profit Maximization is the objective. Profit / Loss Ascertainment is the

objective.
9. Stock Stocks are valued generally at Stocks are valued at Cost or Net
Valuation cost. Realisable Value whichever is less.
10. Nature of It considers both historical costs Generally historical costs are used
costs and pre-determined costs and for recording purposes. Only
extends to plans and policies to explicit i.e. actual cost is used in
improve future performance. It also financial reporting.
considers explicit and implicit cost.

XIII. DIFFERENCE BETWEEN COST ACCOUNTING & MANAGEMENT ACCOUNTING:

SN Particulars Cost Accounting Management Accounting

1. Nature It records quantitative aspects only. It records both qualitative and

quantitative aspects.

2. Objective It records the cost of producing a It provides information to

product and providing a service. management for planning,
controlling and co-ordination.
3. Area It only deals with cost It is wider in scope as it includes
ascertainment. financial accounting, budgeting,
taxation, planning etc.
4. Recording of It uses both past and present It is focused with the projection of
data figures. figures for future.

5. Development Its development is related to It develops in accordance to the

industrial revolution. need of modern business world.

6. Rules and It follows certain principles and It does not follow any specific rules
Regulations procedures for recording costs of and regulations.
different products.

XIV. DISTINGUISH BETWEEN PERIOD COST AND PRODUCT COST

Particulars Product Cost Period Cost
Meaning Costs which becomes part of Costs which are not associated with
production costs. production but with time period.
Inclusion These are included in inventory These are not included in inventory
in valuation. They are treated as assets valuation. They are written off as expense
inventory till the goods to which they are in the period in which they are incurred.
valuation assigned are actually sold.
Examples Cost of Raw Materials, Direct Wages, General Administration Costs, Salesmen
Depreciation of Plant & equipments etc. Salary, Rent of building etc.
Nature of These are variable in nature and These are fixed in nature and changes
Cost changes according to number of units according to period of time.
produced.

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XV. DISTINGUISH BETWEEN COST CONTROL AND COST REDUCTION

Cost Control Cost Reduction
Cost control aims at maintaining the costs in Cost reduction is concerned with reducing
accordance with the established standards. costs. It challenges all standards and
endeavours to improvise them continuously.
Cost control seeks to attain lowest possible Cost reduction recognises no condition as
cost under existing conditions. permanent, since a continuous change will
result in lower cost.
In case of cost control, emphasis is on past and In case of cost reduction, emphasis is on
present. present and future.
Cost control is a preventive function. Cost reduction is a corrective function. It
operates even when an efficient cost control
system exists.
Cost control ends when targets are achieved. Cost reduction has no visible end and it is a
continuous process.
You will study cost control technique in the You will study various cost reduction
chapter of Standard Costing. techniques in the CA Final syllabus.
Example - For petrol car, we can control the Example - By doing research, we can reduce
cost with good maintenance, care & proper the cost with alternative technology like solar
driving habits. car, electric car, hydrogen fuel car etc.

XVI. COST SHEET :

It is a statement in which we present the cost information. Just like, we present the financial
information in the format of Profit & Loss Account and Balance Sheet.
We will discuss it in detail in a separate chapter no. 6. However, just to know some concepts, a
simple cost sheet format is present below.

Particulars Amount (Rs.)

DIRECT MATERIAL
Add : Direct Labour
Add : Direct Expenses
 PRIME COST
Add : Factory OH/Production OH/Manufacturing OH/Works OH
 FACTORY / WORKS COST
Add : Administrative Overheads
COST OF PRODUCTION
Add : Selling & Distribution Overheads
COST OF SALES
Add : Profit
SALES

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Inter CMA / Ver. 3 / Ch. 1 – Basic Cost Concepts 12