Page 58 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes 3.4 Summary

z z Cost sheet is a statement which is prepared periodically to provide detailed cost of a cost
unit or cost centre.
z z A cost sheet not only shows the total cost but also the various components of the total
cost.
z z During the preliminary stage of preparing the cost statement of the product, there are two
things to be borne in our mind at the moment of classification.

™ z Direct cost classification
™ z Indirect cost classification
z z Under this classification, the direct costs of the product or service are added together to
know the volume of total direct cost. The total volume of direct cost is known as “Prime
Cost.”
z z The total factory cost or works cost incurred in the factory could be derived by adding the
both direct cost and indirect cost incurred during the factory process.

z z The cost of production is the combination of both the factory cost and administrative
overheads.

z z The cost of sales is the blend of both, selling overheads and cost of production.
z z The selling price of the commodities is fixed by way of adding both the cost of sales and
profit margin out of the product sales.
z z The cost of the raw materials is nothing but the direct materials cost of the product. The
cost of the materials is in other words cost of the materials consumed for the production
of a product.

z z The indirect expenses are the expenses converting the raw materials into semi-finished
goods which should be relatively considered for the treatment of the stock valuation rather
than on the basis of prime cost.

z z The treatment of the stock of finished goods should carried over in between the opening
stock and closing stock and adjusted among them before the finding the cost of goods
sold.

3.5 Keywords

Cost of Production: It is the combination of cost of manufacturing an article or a product and
administrative cost.
Cost of Sales: It is the entire cost of a product.

Cost Sheet: It is a statement prepared for the computation of cost of a product/service.
Direct Cost: Cost incurred which can be easily ascertained and measured for a product.
Factory Cost: It is the total cost incurred both direct and indirect at the work spot during the
production of an article.

Indirect Cost: Cost incurred cannot be easily ascertained and measured for a product. The
combination of various overheads.
Prime Cost: Combination of all direct costs viz direct materials, direct labour and direct expenses.

Selling Price or Sales: The summation of cost of sales and profit margin.

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