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Total Cost and Cost Sheet

Total Cost Calculation

Inventory Adjustments

Several adjustments are made for changes in inventory levels at various stages of the production and sales process:

  1. Direct Material Consumed:

    • Direct Material Consumed = Opening Stock of Direct Material + Purchases of Direct Material - Closing Stock of Direct Material

  2. Work in Progress (WIP): WIP represents partially completed goods. The change in WIP affects the calculation of the works cost.

  • Works Cost = Gross Works Cost + Opening Work in Progress –Closing work in progress
  1. Finished Goods: Finished goods inventory represents completed products ready for sale. The change in finished goods inventory affects the cost of goods sold.

  • Cost of Production = Works Cost + Office & Admn Overheads

  • Cost of Production of Goods sold = Cost of Production + Opening stock of Finished goods – Closing Stock of Finished goods

  • Cost of Production of Goods sold + S&D exp = Cost of sales

Proforma Cost Sheet Explained

A proforma cost sheet is a structured statement that summarizes the various cost elements involved in producing and selling goods or services. It presents a logical flow of costs, starting from direct materials and culminating in the cost of sales. Here's a breakdown of the proforma cost sheet and its components:

Proforma Cost Sheet Structure

Direct Materials: Opening Stock of Raw Materials(+) Purchases of Raw Materials (-) Closing Stock of Raw Materials = Material Consumed

(+) Direct Labour

(+) Direct Expenses

= Prime Cost

Prime Cost (+) Factory Overheads

= Gross Factory Cost

Gross Factory Cost

(+) Opening Stock of Work-in-Progress (WIP)

(-) Closing Stock of Work-in-Progress (WIP)

= Factory Cost or Works Cost

Factory Cost or Works Cost(+) Office & Administrative Overheads

= Total Cost of Production

Total Cost of Production

(+) Opening Stock of Finished Goods

(-) Closing Stock of Finished Goods

= Cost of Production of Goods Sold (COGS)

Cost of Production of Goods Sold (COGS)(+) Selling and Distribution Overheads

= Total Cost

Total cost (Compare with Sales Revenue to obtain Profit/Loss)

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