INTRODUCTION

Cost Analysis and cost classification involve

grouping of costs into various logical groups on some
suitable basis. Cost analysis and classification are
essential for the purpose of cost control and managerial
decision making.
There are various methods of classification of
costs. The important bases of classification are:

Total Cost

Material Labour Expenses

Direct Direct Direct

Indirect
Indirect Indirect

Prime cost

OVERHEADS

Factory Administration Selling Distribution

Overheads Overheads Overheads Overheads

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 OBJECTIVES OF THE STUDY

 To ascertain the cost per unit of the different

products manufactured by a business.
 To Provide a correct analysis of cost both by
processes or operations and by different elements of
cost.
 To disclose sources of wastage whether of
material, time or expenses.
 To provide requisite data and serve as a guide
for fixing prices of products.
 To ascertain the profitability of each of the
products and advise management as to how these
profits can be maximized.
 To exercise effective control if stocks of raw
materials, work-in-progress, consumable stores and
finished goods in order to minimise the capital locked
up in these stocks.
 To help in the preparation of budgets and
implementation of budgetary control.

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 METHODOLOGY
The study is based on secondary data ,which have
been collected diff. journals, papers, bulletins, magazines,
annual reports and though Internet also. They have been
analyzed with the help of important statistical techniques.
Therefore the data have been interpreted accordingly.

LIMITATIONS
Every organization has some own secrecy, which
cannot be & should not be disclosing to an outsider. So
we had some limitations to enter into the affairs of the
company in depth. The limitations are as follows:-
 Lack of Information.
 Lack of Time.
 Lack of Professional Knowledge.

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 Problem Details
 Raw Material Details: ₹.
Opening stock of raw material 30,000
Purchases of r/m 1,20,000
Closing stock 35,000
 Facory cost Details:
Opening work in progress 15,000
Indirect wages 9,720
Factory Rent and wages 7,830
Plant Repairs 3,420
Depreciation on plant 8,360
Factory lighting 7,380
Closing work in progress 20,000
 Office & Administration overheads Details:
Office Salaries 15,030
General Expenses 13,500
Office rent 2,000
Opening stock of Finished goods 43,700
Closing stock of FG 54,000
 Selling & Distribution overheads Details:
Rent to Showroom 1,200
Salesmen’s Salaries 7,650

 Sales = ₹ 3,25,000

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 REQUIRED INFORMATIONS
1.Direct Materials:
The raw material if any is directly charged
to the production of the period in total.
2.Direct Labour:
Direct labour are those which are directly
engaged for converting raw materials into finished
product.
3.Direct Expenses:
Expenses other than direct material and direct
labour are chargeable expenses e.g. excise duty, royalty,
expenses on designs, patterns and models etc.
4.Prime Cost:
The total of Direct Materials Consumed, Direct
Labour and Other Direct or Chargeable Expenses is known
as Prime Cost.
5. Works Expenses or Overheads:
In unit costing, these expenses related to the
product are added to Prime Cost.
6. Work in Progress:
In any factory or workshop there are always
some units which are not yet complete, but on
which some work has been done. Such work is
known as work- in-progress or work- in- process.

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 The work-in-progress in the beginning is
to be added to the current costs of production and
that at the end of the period has to be deducted from
the manufacturing cost. This may be done when
factory expenses have been added to the prime cost
7.Office and Administrative Expenses:
Works cost or Manufacturing cost increased by
office and administrative expenses.
These are, for example:
(i) Staff and Management salaries,
(ii) Directors Fees,
(iii) Stationery, Printing, Postage, Telephone, Fax and
miscellaneous office expenses,
(iv) Office rent, tax, insurance, light and water etc.,
(v) Counting house or computer and accounting
expenses,
(vi) Repairs, depreciation and insurance of office
building, furniture and equipments.
8. Cost of Production or Office Cost:
When office and administration overheads are
added to works cost, the total shows cost of
production.

9.Cost of Goods Sold:

If all goods produced are not sold, the cost of goods
sold should be ascertained:

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 10.Selling and Distribution Expenses:
These are added to Cost of Goods sold. The total
is known as ‘Cost of Sales’.
11. Profit:
Profit is difference between sales and cost of sales.

Treatment of Defective or Rejected

Production:
The production that is not as perfect as the
saleable product but is capable of being rectified and
brought to required degree of perfection provided
some additional expenditure overheads. The cost of
rectification is treated to be additional works
overheads. On the other hand, the production that
has been totally rejected and cannot be rectified, the
amount so realised by sale of these goods is used to
reduce the cost of factory cost.

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 SOLUTION OF PROBLEM
Statement of Cost & Profit
for the year ended 31.12.97
Particulars ₹. Total cost
₹.
Raw Materials Consumed:
Opening stock of R/m 30,000
Add: Purchases of R/m 1,20,000
1,50,000
Less: Closing stock of R/m 35,000 1,15,000
Direct wages 90,000
Prime cost 2,05,000
Add: Factory Overheads:
Indirect wages 9,720
Factory rent & taxes 7,830
Plant repairs 3,420
Depreciation 8,360
7,380 36,710
Factory lighting
Factory o/h incurred 2,41,710
15,000
Add: Opening work-in-progress
2,56,710
20,000
Less: Closing work-in-progress
Factory/works cost 2,36,000
Add: Office &Adm. Overheads:
Office salary 15,030
13,500
General Expenses 30,530
2,000
Offfice rent
Cost of Production 2,67,240
43,700
Add: Opening stock of finished goods
3,10,940
Less: Closing stock of finished goods 54,000
Cost of goods sold 2,56,000
Add: Selling & Distribution overheads:
Rent to Showroom 1,200
Salesmen’s Salaries 7,650 8,850
Total cost 2,65,790
Add: Profit 59,210

SALES 3,25,000

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 FINDINGS (Analysis)
 In the above problem, I have find the value of Direct
Materials is ₹.1,15,000 ,which is 56.10% on Prime cost.
 Direct labour is 43.9% on Prime cost.
 Factory overheads is 40.79% on Direct labour.
 Office & Adm. overheads is 12.9% on works cost.
 Cost of goods sold is 95.79% on cost of production.
 Selling & Distribution overheads is 3.45% on cost of
goods sold.
 Profit is 22.28% on Total cost.
 Profit is 18.22% on sales.

SUGGESTION
 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.
 For controlling the cost of a product it is
necessary for every manufacturing unit to prepare a cost
sheet. Estimated cost sheet helps in the control of
material cost, labour cost and overheads cost at every
point of production.
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 CONCLUSION

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.

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 BIBLIOGRAPHY

BOOKS:
Cost Accountig S.P Jain
(Kalyani Publisher) K.L.Narang
Monika Sehgal
Semmi Agrawal
WEBSITES:
 www.google.com

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