Cost sheet definition
/What is a Cost Sheet?
A cost sheet is a report on which is accumulated all of the costs associated with a product or production job. A cost sheet is used to compile the margin earned on a product or job, and can form the basis for the setting of prices on similar products in the future. It can also be used as the basis for a variety of cost control measures. Despite the name, a cost sheet can be compiled and viewed on a computer screen, as well as being manually developed on paper. The costs listed on the report are usually aggregated into three categories, which are direct materials, direct labor, and allocated factory overhead. In some situations, a cost sheet may also include a line item for allocated administrative overhead. In addition, the costs of shipping and handling, supplies, and outsourced costs may also appear on a cost sheet in varying degrees of detail.
Advantages of a Cost Sheet
There are multiple uses to which a cost sheet can be put. They are as follows:
Primary source of cost information. A cost sheet is the best way to obtain a detailed product or project cost, and so should be routinely compiled and distributed.
Basis for price setting. If the selling price of a product or service is based on a cost-plus arrangement, then the cost sheet is needed to derive the price to be charged.
Cost comparisons. A completed cost sheet can be compared to the cost sheet for similar products or projects, to see how well the company performed in containing costs; this can result in corrective measures by management.
Competitiveness analysis. Cost sheets can be used to decide whether the business should be involved in the targeted product or project; a cost sheet analysis may reveal that the firm’s cost structure is not competitive.
Production of a Cost Sheet
The development of a cost sheet can be a major production, especially if it is compiled by hand. Even if it is drawn from a database of compiled costs, a cost accountant must still review it for duplicate, missing, or incorrect entries before issuing it. A cost sheet is normally issued along with an explanatory page that points out any unusual costs incurred or variances that management should be aware of.
The format of a cost sheet is usually a standard one that is either manually rolled forward from earlier reports, or else set up within the accounting system for automatic display when a report is printed.
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Standard Costs on a Cost Sheet
The costs listed on a cost sheet usually include charges for actual material and labor costs incurred. However, it is also possible that these costs are only listed at their standard costs, which are obtained by backflushing; this is the process of multiplying the number of units produced by bills of material and labor routings to arrive at the costs that should have been associated with a product or job.
Cost Sheets Used for Quotes
An alternative purpose for the cost sheet concept is to use it as the basis for a quote to a customer, usually for the manufacture of a custom product. In this case, the cost sheet includes the best estimates of the company's estimators for the requested product, with details for each of the previously indicated expense line items.
Terms Similar to Cost Sheet
A cost sheet is also known as a costing sheet.