Cost Sheet Format

What is a Cost Sheet?

A cost sheet sets out, stage by stage, what it cost to make and sell a product in a given period: prime cost, works cost, cost of production, cost of goods sold, cost of sales, and finally the selling price once profit is added. Each stage is shown in total and per unit. Without one, a small manufacturer quoting a price is guessing, and the costs easiest to forget are the overheads that never appear on a supplier's bill.

Small manufacturers use a cost sheet to price an order, to check whether a product still earns its keep after a rise in material or labour rates, and to decide whether to make a component or buy it in. Job workers and fabricators prepare one for each job before quoting. Accountants use it to compare the cost of the same product across periods, and commerce and CMA students meet it as one of the first formats in cost accounting, usually with opening and closing stocks of work in progress and finished goods to adjust.

In India, the Companies (Cost Records and Audit) Rules, 2014 require specified companies above set thresholds to keep cost records and, in some cases, to have them audited; whether they apply depends on the company's industry and turnover, so check the current rules with a cost accountant. The Institute of Cost Accountants of India also issues cost accounting standards. Outside India, a cost sheet is an internal management document with no statutory format, though a contract priced on cost, such as a government contract, may define which costs can be charged — read the contract before building a price from the sheet.

A cost sheet is not a profit and loss account. It analyses the cost of one product or job, while the profit and loss account reports the whole business's profit for a period, including income and expenses a cost sheet leaves out, which is why the two profits are reconciled rather than expected to match. Nor is it a stock valuation for the financial accounts: AS 2 in India leaves selling costs, and administrative overheads unrelated to production, out of inventory. And the profit line is a figure you choose, not one the sheet proves.

What to put in a Cost Sheet

These are the details this template asks for. Anything left blank is marked in red on the preview so you can see what is still missing.

How to write a Cost Sheet

1. Fix the product, period and units

   Name the product exactly, down to the size or grade, and the period the figures cover. Then record the units produced in that period — pieces, kilograms, metres or jobs, whichever you price in. Every per-unit figure on the sheet depends on this count, so take it from production records rather than sales, which will differ whenever finished stock has built up or run down.

2. Build prime cost from direct costs

   Direct materials consumed are opening stock of materials plus purchases and carriage inwards, less returns and closing stock of materials. Direct labour is the wages of the people who make the product. Direct expenses are costs traceable to it, such as royalty on production or hire of a special tool. Materials of ₹2,00,000, labour of ₹1,00,000 and direct expenses of ₹20,000 give prime cost of ₹3,20,000.

3. Add factory overheads and adjust work in progress

   Factory overheads are indirect production costs: factory rent and power, depreciation of machinery, a supervisor's salary, indirect materials such as lubricants. Add them to prime cost, add opening work in progress and deduct closing work in progress to reach works cost. Here, ₹3,20,000 plus overheads of ₹60,000, plus opening work in progress of ₹15,000, less closing work in progress of ₹25,000, gives ₹3,70,000.

4. Add office overheads and adjust finished stock

   Office and administration overheads — office rent, office salaries, audit fees, printing and stationery — added to works cost give cost of production: ₹3,70,000 plus ₹30,000 is ₹4,00,000, or ₹400 a unit on 1,000 units. Then add opening stock of finished goods and deduct closing stock of finished goods to reach cost of goods sold, the cost of the units actually sold.

5. Add selling costs and profit, then divide

   Selling and distribution overheads — advertising, sales commission, carriage outwards, delivery van running costs — added to cost of goods sold give cost of sales. Add profit to reach the sales figure. Divide each stage by units to show cost per unit, using units sold rather than units produced for the later stages if finished stock changed. State profit as an amount, since a quarter of cost is only a fifth of price.

Cost sheet example with per-unit figures

Take the figures from the steps above through to the end. The business makes 1,000 units in the period, at a cost of production of ₹4,00,000, or ₹400 a unit. It has no opening stock of finished goods. At the close, 100 units are still unsold. They are valued at the period’s cost of production of ₹400 each, so closing finished stock is ₹40,000. Cost of goods sold is ₹4,00,000 less ₹40,000, or ₹3,60,000 for the 900 units sold, which is still ₹400 a unit.

Selling and distribution overheads of ₹27,000 bring cost of sales to ₹3,87,000, or ₹430 a unit on 900 units. With a profit of ₹63,000, sales come to ₹4,50,000, or ₹500 a unit. Read down the per-unit column and the story is plain: ₹320 of prime cost, ₹370 by the factory gate, ₹400 by the end of production, ₹430 once the goods are sold, and ₹70 of profit on each unit.

How to prepare a quotation from a cost sheet

A cost sheet looks back at a period; a quotation looks forward to an order. To price a new order, start from the latest cost sheet and estimate the order’s direct costs afresh: the materials it needs at today’s rates, the labour hours at current wage rates, and any direct expenses. Do not simply copy last period’s cost per unit, because material prices, wage rates and the size of the order all change the answer.

Overheads are usually added as rates worked out from the last cost sheet. In the steps above, factory overheads of ₹60,000 against direct labour of ₹1,00,000 give a rate of 60 per cent of labour, so an order needing ₹10,000 of labour carries ₹6,000 of factory overheads. Office overheads are often charged as a share of works cost in the same way. Textbooks and firms choose different bases, so use the one your course or your accountant uses.

Watch the costs that do not grow with output. Factory rent, a supervisor’s salary and depreciation stay much the same whether you make 1,000 units or 1,500, so their share of each unit falls as output rises. Spreading them at last period’s rate over a much larger order overstates its cost, and over a much smaller one it understates it. For large or one-off orders, separate fixed costs from variable ones before you fix a price.

Common mistakes

• Adding closing work in progress instead of deducting it overstates works cost, and every stage after it, by twice the value of the unfinished goods.
• Loading income tax, dividends, donations or a loss from a fire into the cost sheet inflates the cost per unit and pushes the quoted price above what the product costs to make.
• Dividing cost of sales by units produced when some of those units are still in the godown understates the cost of each unit sold and leads to underpricing.
• Treating carriage outwards or sales commission as a factory overhead inflates works cost and cost of production, so the product looks dearer to make and cheaper to sell than it is.
• Confusing profit as a share of cost with profit as a share of the selling price sets a price that misses the intended margin: a profit of one-quarter on a cost of ₹400 is ₹100, which is only one-fifth of the ₹500 price.

Frequently asked questions

This page explains general practice and is not legal advice. Requirements differ between countries and, in some cases, between states — check what applies where the document will be used.

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