Nov 2024 group-2

Cost & Management Accounting

Employee Cost & Direct Expenses

Revision
Lecture No.- 1

By- CA Sunil Keswani

to be covered
1 Cost sheet
 Cost Sheet
1. Cost Sheet
It is a statement which shows the break-up and build-up of costs for a particular period.

2. Statement of Cost/Cost Sheet

Particulars Total Cost Cost per
(`) unit (`)
Opening stock of Raw Material
Add: Purchases
Less: Closing stock of Raw Material
Add: Carriage/Freight inward
Less: Raw material purchase return
Less: Sale value of scrap of raw material
Direct Material Consumed
Add: Direct labour cost
Add: Direct expenses or chargeable expenses
Prime Cost
 Cost Sheet
Particulars Total Cost (Rs.) Cost per unit (Rs.)
Prime Cost
Add: Factory/Work Overheads
Gross Factory/Work Cost
Add: Opening stock of WIP
Less: Closing stock of WIP
Net Factory/Work cost
Add: Quality control cost
Add: Research and Development cost
Add: Administrative overheads (related to production)
Add: Packing cost (primary)
Less: Credit for recoveries/Scap/Defectives/By-Product
Cost of Production
Add: Opening stock of finished goods
Less: Closing stock of finished goods
Cost of Goods Sold
Add: Administrative overheads (general)
Add: Selling and distribution overheads
Cost of Sales
 Cost Sheet
3. Points to Remember (PTR)

Loss or Gain
By reducing quantity and
Normal Charge to consumer
increasing price per unit

Abnormal Charge to owner By transferring to P&L

 Cost Sheet
(B) Certain expenses not appear in cost sheet:
Ø Goodwill or preliminary expenses written off
Ø Income tax
Ø Loss on sale of assets or investment
Ø Cost pertaining to or arising out of a pandemic e.g. COVID-19
Ø Penalty, fines, damages etc.

(C) Work = Factory

Work Overheads = Factory Overheads
Work Cost = Net Factory Cost

(D) Cost of goods available for sale = Opening stock of FG + Cost of Production

(E) Cost of goods processed during the period = Opening stock of WIP + Gross Factory Cost
 Cost Sheet
(G) Employee/Labour cost: It includes-
Ø Wages
Ø Bonus
Ø Allowances
Ø Overtime
Ø Employer contribution to PF/ESI/SSS
Ø Any other benefit

(H) Direct Expenses

Ø Royalty for production
Ø Cost of utilities such as power & fuel, steam etc.
Ø Fee for technical know-how
Ø Cost of product/service specific design or drawing
Ø Cost of product/service specific software
Ø Amortized cost of moulds, patterns, patents etc.
Ø Job charges paid to job workers
Ø Hire charges paid for hiring specific equipment
Ø Other expenses which are directly related with production
 Cost Sheet
4. Treatment of Expenses
Expenses Treatment
Drawing office expenses Factory Overheads
Haulage Factory Overheads
Stores Related Expenses Factory Overheads
Stores Consumed = Opening + Purchases – Closing
Warehouse or Godown Expenses Selling & Distribution Overheads
Loose tools written off Factory Overheads
Bank charges Administration Overheads
Salesmen commission Selling & Distribution Overheads
Cost of Samples Selling & Distribution Overheads
Audit Fee Administration Overheads
General Expenses Administration Overheads
Counting House Salaries Administration Overheads
 Cost Sheet
Expenses Treatment
Production planning expenses in office Administration Overheads related to Produciton
Director’s fees Administration Overheads
Fee for exhibition participation Selling & Distribution Overheads
Pollution control expenses Factory Overheads
Carriage on raw material return Factory Overheads
Bad Debts Ignore
Packaging
Primary Packaging Add after NFC
Secondary Packaging Selling & Distribution Overheads
GST
GST Output Add after Sales value
GST Input
ITC Available Ignore
ITC Not Available Add to the cost of item to which it relates
 Cost Sheet
Expenses Treatment
Custom Duty Add to the cost of item to which it relates

Discount
Trade Discount Deduct if not already deducted
Cash Discount Ignore
Other discount or discount on sales Selling & Distribution Overheads

Waste/Scrap
Scrap for which amount is received on sale
Related to raw material Deduct from Raw Material consumed
Arises during production Deduct after NFC
Scrap for which disposal cost is to be incurred Add to Factory Overheads
 Cost Sheet

Expenses Treatment
Defectives
Sold as it is at discount
When low discount Add with sales value
When high discount Deduct after NFC
Goods are rectified by incurring rectification cost Add rectification cost to Factory Overheads
 Cost Sheet
5. Administration Overheads
If administration overheads is ___% of NFC
or
If administration overheads is ` ___ per unit produce
then in both situation consider them as related to production.

6. Conversion Cost
It is the cost to convert raw material into finished goods. It is sum total of direct labour, direct expenses and
factory overheads.
 Cost Sheet
7. Valuation of Stock

Stock can be valued either on FIFO basis or LIFO basis or Weighted average method.
Unless otherwise provided FIFO method will be used for valuation of stock.

According to FIFO Method,

!"#$%& #' ()* ")&+(,)- .$(/ℎ)1+2
Value of cl. stock of raw material = 3)* ")&+(,)- .$(/ℎ)1+ 4$)%&,&5 ×"#. %&'() *+, -+&.*/+# 01/&%

6#1& #' 7(#2$/&,#%

Value of closing stock of finished goods = ×"#'%/12 %&'() 3/1/%ℎ.5 2''5% 01/&%
8%,&1 .(#2$/+2

According to Weighted Average Method,

39 .$(/ℎ)1++;.. =&#/> #' 39
Value of cl. stock of raw material = 39 .$(/ℎ)1+ $%,&1+;.. 1&#/> 39 $%,&1 ×"#. %&'() *+, -+&. 01/&%

6#1& #' 7(#2$/&,#% + ;.. 1&#/> ?@

Value of closing stock of finished goods = ×"#'%/12 %&'() 67 01/&%
8%,&1 .(#2$/+2+;.. 1&#/> ?@ $%,&1
 Cost Sheet
For raw material,
Raw material consumed units = Op. stock RM units + RM Purchase units – Cl. stock RM
For finished goods,
Finished goods units sold = Op. stock FG units + FG units produced – Cl. stock FG units
If there is NIL Opening stock
ABCD BE FGBHIJDKBL ABCD BE PBBHC QBRH
Cost per unit of finished goods = =
MLKDC NGBHIJOH MLKDC QBRH

8. Calculation of per unit data and vice versa

(A) For calculating per unit data
Ø Divide all values by Units Produced upto cost of production
Ø Divide all values by Units Sold from COGS and onwards
(B)If factory overheads or administration overheads (production related) per unit is given then multiply it with
number of units produced to get total value.
(C)If administration overheads (general) and selling and distribution overheads per unit is given then multiply it
with number of units sold to get total value.
 Cost Sheet
9. Recovery Rate
It is the rate which is used to recover/absorb/charge overheads from the products being manufactured or services
being provided.
Unless otherwise provided, following basis will be used for recovery of overheads:
Factory overheads Direct labour
Administration overheads Net factory cost or work cost
Selling and distribution overheads Net factory cost or work cost

10. Change in Cost Effects

Total Cost = No. Of units ´ Cost per unit

Quantity Price
Effect Effect
 Cost Sheet
Total VC Total FC
Quantity Effect YES NO
Price Effect YES YES

Relation between:
(A)Quantity and Variable cost - Direct Relation
(B)Price and Variable cost - Direct Relation
(C)Price and Fixed cost - Direct Relation
(D)Wages and Efficiency - Inverse Relation
(E)Efficiency and Output - Direct Relation
 Cost Sheet
Unless otherwise provided, following points are to be assumed:
(a) VC per unit will remain same
(b) Total FC will remain same
(c) All direct cost are considered to be variable in nature
(d) All overheads are considered to be fixed in nature