# How to Prepare a Cost Sheet

There may be many questions in the minds of many businessmen who have their own factories, prominent among them being, how to prepare a cost sheet. Well, then read on.
Charlie S
Running a business successfully requires a lot of financial planning and effective financial management. A cost sheet can be a way of being aware of all the costs incurred by us on different things while running a factory or facility.
From this knowledge, we can easily think of cost cutting ideas for companies and institutions. So, you must have some idea as to why the preparation of a cost sheet is essential. The format is standard and we are expected to follow it. Here you will learn how to prepare a cost sheet.

## Factors to be Considered

### Calculation of Materials Consumed

The aim of preparing a cost sheet is to show the various types of costs incurred by the factory in the course of its operations. This document consists of particulars and amount columns. In the particular columns, you show the different kinds of expenses of the company. Calculating the materials consumed is the first step.
The materials consumed are calculated by adding the purchased raw material cost and carriage inward to the opening stock of raw materials, and then subtracting the closing stock of raw materials from this total.
Materials Consumed = (Opening stock of raw materials + purchase of raw material + carriage inward) - (closing stock of raw material).

### Calculation of Prime Cost

Prime cost is calculated by adding direct wages and direct expenses to the materials consumed total. Direct wages are the wages given to workers in the factory and direct expenses are the expenses incurred while making the finished goods.

Prime Cost = Materials consumed + direct wages + direct expenses.

### Calculation of Factory cost

The next step is the calculation of factory cost. The factory cost is calculated by adding the factory overheads to the prime cost. The factory overheads are the expenses related to the factory and are in no way related to administration and marketing expenses.
These factory overheads can include lighting costs, salaries for workers, machinery cost, rent for factory, insurance for factory, power costs, fuel cost, etc. Overhead is actually the sum total of indirect material, indirect wages, and indirect expenses.

Factory Cost = Prime cost + sum of all factory overheads.

### Calculation of Cost of Production

The cost of production can be calculated by adding the office and administration overheads to the factory cost. Now, the office and administration overheads are the salaries of managers, director's fees, office light expenses, stationery expenses, building maintenance expenses, etc.