Cost Sheet Project - Hindustan Petroleum Corporation LTD

4/4/2015
CostsheetProjectHindustanPetroleumCorporationLtd
MEANING OF COST
COST represents a sacrifice of values, a foregoing or a release of something of value. It is the price of
economic resources used as a result of producing or doing the thing costed. It is the amount of
expenditure incurred on a given thing. Cost has been defined as the amount measured in money or
cash expended or other property transferred, capital stock issued, services performed or a liability
incurred in consideration of goods or services received or to be received. By cost, we mean the actual
cost i.e. historical cost. ICWA UK defines cost as the amount of expenditure actual or notional
incurred on, or attributable to a specified thing or activity. The object for which the cost is to be
determined can be a product or service
CLASSIFICATION OF COST
Cost classification is the process of grouping costs according to their common features. Costs are to
be classified in such a manner that they are identified with cost center or cost unit.
On the basis of behaviour of cost

Behaviour means change in cost due to change in output. On the basis of behaviour cost is classified
into the following categories:
Fixed Cost
It is that portion of the total cost, which remains constant irrespective of output up to the capacity
limit.
It is called as a period cost as it is concerned with period
It depends upon the passage of time.
It is also referred to as nonvariable cost or stand by cost or capacity cost or period cost.
It tends to be unaffected by variations in output
These costs provide consitions for production rather than costs of production.
They are created by contractual obligations and managerial decisions. Rent of premises, taxes and
insurance, staff salaries constitute fixed cost.
Variable Cost
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This cost varies according to the output

In other workds, it is a cost which changes according to the changes in output.
It tends of vary in direct proportion to output.
If the output is decreased, variable cost also will decrease
It is concerned with output or product. Therefore, it is called as a product cost.
If the output is doubled, variable cost will also be doubled. For example, direct material; direct
labour, direct expenses and variable overheads.
Semivariable Cost
This is also referred to as semifixed or partly variable cost
It remains constant upto a certain level and registers change afterwards.
These costs vary in some degree with volume but not in direct or same proportion.
Such costs are fixed only in relation to specified constant conditions,. For example, repairs and
maintenance of machinery, telephone charges, maintenance of building, supervision, professional tax
etc.
On the basis of elements of cost

Elements means nature of items. A cost is composed of three elements: material, labour and expenses,
Each of these three elements cab be direct and indirect.
Direct Cost
It is the cost, which is directly chargeable to the product manufactured, it is easily identifiable. Direct
cost consists of three elements, which are as follows:
Direct Material
It is the cost of basic raw material used for manufacturing a product.
It becomes a part of the product
No finished product can be manufactured without basic raw materials
It is easily identifiable and chargeable to the product
For example, leather in leather wares, pulp in paper, steel in steel furniture, sugarcane for sugar etc
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What is raw material for one manufacturer might be finished product for another.
Direct material includes the following:
1. All materials specially purchased for production or the process.

2. All components purchased for production or the process.
3. Material transferred from one cost center to another or one process to another.
4. Primary packing materials, wrappings, cardboard boxes etc., necessary for preservation or
protection of product.
5. Some of the items like nails or thread in the store are part of finished product. They are not treated
as direct materials in view of negligible cost.
Direct Labour or Direct Wages

It is the amount of wages paid to those workers who are engaged on the manufacturing line of
conversion of raw materials into finished goods.
The amount of wages can be easily identified and directly charged to the product These workers
directly handle raw material, wip and finished goods on the production line
Wages paid to workers operating lathers, drilling, cutting machines etc. are direct wages
Direct wages are also known as productive labour, process labour or prime cost labour.
Direct wages include the payment made to the following group of workers:
1. Labour engaged on the actual production of the product.
2. labour engaged in aiding the operations viz. supervisor, Foreman, Shop clerks and worker on
internal transport.
3. Inspectors, Analysts needed for such production
Direct Expenses or chargeable Expenses

It is the amount of expenses which is directly chargeable to the product manufactured or which may
be allocated to product directly
It can be easily identified with the product. For example, hire charges of a special machine used for
manufacturing a product, cost of designing the product, cost of patterns, architects fees/surveyors
fees, or job cost of experimental work carried out especially for a job etc.
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Cost of special drawings, cost of special layout designs, patents, patterns, cost of models, surveyors
fees, Excise duty, Royalty on production cost of ractifying defective work. Utility of such expenses is
exhausted on completion of the job.
Indirect Cost
It is that portion of the total cost, which cannot be identified and charged direct to the product
It has to be allocated, apportioned and absorbed over the units manufactured on a suitable basis.
Indirect Material
It is the cost of material other than direct material which cannot be charged to the product directly
It can not be treated as part of the product,
It is also known as expenses materials
It is the material which cannot be allocated to the product but which can be apportioned to the cost
units. Examples are as follows:
1. Lubricants, cotton waste, Grease, Oil, stationery etc.

2. Small tools for general use.
3. Some minor items which as thread in dressmaking, cost of nails in shoe making etc.
Indirect Labour.
It is the amount of wages paid to those workers who are not engaged on the manufacturing line, for
example, wages of workers in administration department, watch and ward department, watch and
ward department, sales department, general supervision.
Indirect Expenses
It is the amount of expenses which is not chargeable to the product directly
It is the cost of giving service to the production department
It includes factory expenses, administrative expenses, selling and distribution expenses etc.
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OVERHEADS OR ON COST OR BURDEN OR SUPPLEMENTARY COST
Aggregate of indirect cost is referred to as overheads. It arises as a result of overall operation of a

business. According to Weldon overhead means the cost of indirect material, indirect labour and
such other expenses, including services as cannot conveniently be charged direct to specific cost units.
It includes all manufacturing and nonmanufacturing supplies and services.
This cost cannot be associated with a particular product. The principal feature of overheads is the lack
of direct tractability to individual product. It remains relatively constant from period to period. The
amount of overheads is not directly chargeable i.e. it had to be properly allocated, apportioned and
absorbed on some equitable basis.
Classification of Overheads
1.Factory Overheads:
It is the aggregate of all the factory expenses incurred in connection with manufacture of a product
These are incurred in connection with running of factory
It includes the items of expenses viz., factory salary, work managers salary, factory repairs, rent of
factory premises, factory lighting, lubricants, factory power, drawing office salary, haulage cost of
internal transport depreciation of plant and machinery unproductive wages, estimation expenses,
royalties loose tools w/off, material handling charges, time office salaries, counting house salaries etc.
2. Administrative Overheads or Office Overheads:

It is the aggregate of all the expenses as regards administration
It is the cost of office service or decision making
It consists of the following expenses: Staff salaries, office premises, office conveyance, printing and
stationery and repairs and depreciation of office premises and furniture etc.
3. Selling and Distribution Overheads:

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It is the aggregate of all the expenses incurred in connection with sales and distribution of finished
product and services
It is the cost of sales and distribution services.
Selling expenses are such expenses, which are incurred in acquiring and retaining customers. It
includes the following expenses:
a Advertisement b Show room expenses c Traveling expenses
d Commission to agents Salaries of Sales office f Cost of catalogues
g Discounts allowed h Bad debts written off i Commission on sales
j Rent of Sales Room
4.Distribution expenses
It includes all those expenses, which are incurred in connection with making the goods available to
customers. These expenses include the following:
a Packing charges b Loading charges c Carriage on sales d Rent of warehouse e Insurance and
lighting of warehouse f Insurance of delivery van g Expenses on delivery van h Salaries of
Godownkeeper, drivers and packing staff.
DETERMINATION OF TOTAL COST

Cost of product is determined as per cost attach concept. Total cost of a product consists of various
elements of cost, which have the quality of coherence. All the elements of cost can be grouped and
regrouped. Grouping and regrouping of the various elements of costs leads to significant divisions of
cost.
NONCOST ITEMS
Noncost items are those items, which do not form part of cost of a product. Such items should not
be considered while ascertaining cost of a product. These are items included in profit and loss A/c as
per principles of Financial Accountancy but not related to product. For example, Incometax paid,
provision for Incometax, interest on capital, interest on loan, profit on sale of fixed assets, loss on sale
of fixed assets, transfer fees received, transfer to reserves, any other appropriation of profit,
commission to Managing Director or Partners, capital loss, donations, capital expenditure, discount on
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shares and debentures, Goodwill written off, Preliminary expenses written off, brokerage, pure
financial expenses or losses and expenses not related to th business, wealth tax, bonus to directors
and employees, if it is based on profit, expenses of raising capital, penalties and fines.
COST SHEET
For determination of total cost of production a statement showing the various elements of cost is
prepared. This statement is called as a statement of cost or cost sheet. Cost sheet is a statement,
which provides for the assembly of the detailed cost of the total cost of job operation or order. It
brings out the composition of total cost in a logical order, under proper classifications and sub
divisions. The period covered by the cost sheet may be a week, a month or so. Separate columns are
provided to show the total cost and cost per unit. In case of multiple products a separate cost sheet
may be prepared for each product. Alternatively, separate columns of total cost and unit cost may be
provided for each product in the same cost sheet. A cost sheet is prepared under output or unit
costing method.
Purposes of cost sheet

Cost sheet serves the following purposes:
1. It gives the break up of total cost under different elements.
2. It shows total cost as well as cost per unit
3. It helps comparison with previous years.
4. It facilitates preparation of tenders or quotations
5. It enables the management to fix up selling price
6. It controls cost.
DIVISIONS OF COST
Prime Cost:It comprises of all direct materials, direct labour and direct expenses. It is also known as flat
cost.
Prime Cost = Direct Materials + Direct Labour + Direct Expenses.
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Works Cost:It is also known as factory cost or cost of manufacture. It is the cost of manufacturing an
article. It includes prime cast and factory expenses.
Works Cost = Prime Cost + Factory Overheads
Cost of Production:It represents factory cost plus administrative expenses

Cost of Production = Factory Cost + Administrative expenses
Total Cost:It represents cost of production plus selling & distribution expenses
Total Cost = Cost of production + Selling & distribution expenses
Selling Price: It is the price, which includes total cost plus margin of profit or minus loss, if any.
Selling Price = Total Cost + Profit Loss
TREATMENT OF CERTAIN ITEMS
i Raw Materials
For calculation of raw material consumed, following formula may be used:
Rs.
Stock of Raw Materials XX
Add Purchases XX
XX
Less Closing Stock of Raw Materials XX
Cost of Material Consumed XX
ii Work in Progress
It represents incomplete units at the end of a given period. The work in progress is valued at prime
cost or at factory cost.
At Prime Cost
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In such a case opening and closing work in progress is taken into consideration in cost sheet while
calculating prime cost.
Rs.
Direct Materials XX
Add Direct Wages XX
Add Other Direct Expenses XX
Add Opening Work in Progress XX
XX
Less Closing work in Progress XX
Prime Cost XX
At Factory Cost
Direct Materials XX
Direct Labour XX
Other Direct Expenses XX
Prime Cost XX
Add Factory Overheads XX
Add Opening Work in Progress XX
XX
Less Closing Work in Progress XX
Factory Cost XX
iii Carriage Inward

It is the carriage on purchase of materials, which should be added to the cost of materials purchased.
iv Carriage Outward
It is the carriage on sales, which should be treated as selling and distribution overhead.
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v Defective Materials
If defective material is returned to supplier, the cost of material consumed should be reduced by the
value of such material. If it is sold, it should be reduced.
vi Scrap
If wastage or residual of material scrap or defective product is sold as scrap, the value realized should
be deducted from factory overheads.
vii ByProduct
Realisable value of byproduct is deducted from factory overheads.
viii Defective Product
If defective product is rectified by incurring extra expenditure, it should be included in factory cost if it
is caused by normal reasons. If it is caused by abnormal reasons, the rectifying cost is transferred to
costing P & L A/c.
COST ACCOUNTING STANDARDS CAS4

Name of the Manufacturer:
Address of the Manufacturer:
Registration No. Of Manufacturer:
Description of product captivity consumed:
Excise Tariff Heading:
Statement of Cost of Production of ____________ manufactured / to be manufactured during the period
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_____________.
Qty.
Q1 Quantity Produced Unit of Measure
Q2 Quantity Despatched Unit of Measure
Particulars Total Cost
Rs Cost/Unit
Rs
1. Material Consumed
2. Direct Wages and Salaries
3. Direct Expenses
4. Works Overheads
5. Quality Control Cost
6. Research & Development Cost
7. Administrative Overheads relating to production activity
8. Total 1 to 7
9. Add: Opening stock of Workinprogress
10. Less: Closing stock of Workinprogress
11. Total 8+910
12. Less: Credit for Recoveries / Scrap / Byproducts / Misc.income
13. Packing cost
14. Cost of production 11 12 + 13
15. Add: Inputs received free of cost
16. Add: Amortised cost of Moulds, Tools, Dies & Patterns etc., received free of cost
17. Cost of Production fro goods produced for captive consumption 14 + 15 + 16
18. Add: Opening stock of finished goods
19. Less: Closing stock of finished goods
20. Cost of production for goods despatched 17 + 18 + 19
Seal & Signature of Companys Authorised Representative
I / We, have verified above data on test check basis with reference to the books of account., cost
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accounting records and other records. Based on the information and explanations given to me / us.,
and on the basis of generally accepted cost accounting principles and practices followed by the
Industry. I / We certify that the above cost data reflect true and fair view of the cost of production
Date: Seal & Signature of Cost Accountant
Place: Membership No.
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COSTING FOR TATA MOTORS

The Passenger Car division was born out of a vision to offer the Indian customer all the comfort of a
big car, at the price of a small car. The Indica was formally launched in 1998 & has rewritten the rules
of the Indian car industry ever since then. The latest addition to the Tata Motors family after the
launch of Indigo which is designed to deliver neverbefore levels in luxury, safety, power and comfort
on Indian roads is the New Indica V2. Refreshingly different, with a sporty new look, stylish interiors,
and more. The Indigo Marina story started two years back with the launch of the luxury sedan from
Tata Motors, the Tata Indigo. There were however, a select group of people who wanted everything
that came with the Indigo plus a little more space. So, we developed the Indigo Marina. A car that has
the luxury of a sedan and the utility and convenience of a multiutility vehicle. A car that does not
compromise on power, safety and luxury. A car that has enough space to carry everyone and
everything you've ever loved, right by your side, on every drive.
Established in Established in
COST SHEET
Cost Sheet for Tata Motors for the year 20032004
Rs./ Crores
Direct Materials
a Spare parts & accessories for sale 253.55
b Bodies & trailers for mounting on chassis 214.43 467.98
Direct Labour 323.00
Direct Expense 2270.30
Prime Cost 3061.28
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Factory Overheads
Consumption of Raw Materials 7873.41
Processing Charges 388.59
Stores, spare parts & tools consumed 236.73
Freight, transportation, port charges 185.47
Repairs to plant, machinery 25.62
Power & Fuel 214.52
Insurance 21.44
Lease Rentals in respect of Plant & Machinery 8.84
Depreciation 382.60
Work CostGross 9337.22
Opening WIP 793.91
Less: Closing WIP 651.93 141.98
Works CostNet 9479.20 12540.48
Administrative Overheads
Salaries 323.99
Repairs to building 20.37
Rent 9.37
Rates & Taxes 22.16
Total Cost 375.89 12916.37
Add: Opening Finished Goods
Add: Purchase of Finished Goods
Less: Finished Goods
Cost of production of Saleable units 12916.37
Selling and Distribution Expenses
Publicity 123.60
Incentive/Commission to dealers 120.57
Commission & Brokerage on sales 25.92
Cost of Sales 270.09 13186.46
Profit 2022.28
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Sales 15208.74
Assumptions:
1. The salaries & wages are divided in the ratio of 1:1 such that 323 crores is allocated to the factory
direct labour & 323.99 crores is allocated to the office administration.
2. Freight & stores consumed are factory expenses
3. Repairs to building are an administrative expense as the building is used for the office.
4. Rent, Rates & Taxes are administration expenses.
Following items are excluded from the cost sheet

Product development cost is a capital expenditure hence not considered.
Interest being a financial expense is not considered.
Extraordinary items like write back of provision for contingencies, provision for diminution in vale of
investment & employee separation cost not considered.
Provision for tax, investment allowance & the other appropriations in profits are not considered in
arriving at cost.
Superannuation, gratuity & contribution to provident fund.
Workmen & staff welfare expenses, which includes provisions for employee benefit schemes, is not
considered.
Provision for Wealth Tax.
Excess debits/ short credits in respect of previous years.
Loss on assets sold/scrapped/written off.
Provision for doubtful sundry debts, bad debts written off, warranty expenses & securitisation
expenses for hire purchase contracts.
COSTING OF HINDUSTAN PETROLEUM HPCL

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Hindustan Petroleum Corporation Limited HPCL is the result of a successful convergence of four
established companies. Today the second largest integrated oil refining and marketing company in
India, HPCL was born of the merger of ESSO, Lube India Ltd, Caltex Oil Refining India Ltd and Kosan
Gas Company Ltd.
The Company was first incorporated as Standard Vacuum Refining Company of India Limited, on July
5, 1952, and later named ESSO India Limited, on March 31, 1962. On July 12, 1974, when Esso and
Lube India were nationalised, the Company was renamed Hindustan Petroleum Corporation Limited
with effect from July 15, 1974. The undertakings after nationalisation were then vested in HPCL. The
Government of India also nationalised the Caltex undertakings in the year 1976, which were
subsequently merged with HPCL in 1978. In the following year, the undertakings of Kosan Gas
Company Ltd, the concessionaires of HPCL in the domestic LPG market, were merged with HPCL. Thus,
the various amalgamations, at different points in time, have given rise to HPCL that has ever since
been growing from strength to strength.
HPCL had a humble beginning in 1974 with one refinery at Mumbai that had a refining capacity of 3.5
million metric tonnes per annum MMTPA. The Lube oil refinery at Mumbai stood around 165000
Tonnes per annum. The sales turnover in that year was only Rs. 3.67 billion, and the net profit Rs. 58
million. But over the years, the Corporation has made judicious use of its assets to achieve
tremendous growth. Dedicated and well experienced manpower, strategically located refineries at
Mumbai and Visakh and a widespread marketing network have enabled the company to carve a niche
in the Indian oil industry today.
Vision
"To be a leading world class company in hydrocarbons and energy related sectors with a global
presence.
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Mission
HPCL, along with its joint ventures, will be a fully integrated company in the hydrocarbons sector of
exploration and production, refining and marketing;
focussing on enhancement of productivity, quality and profitability; caring for customers and
employees; caring for environment protection and cultural heritage.
It will also attain scale dimensions by diversifying into other energy related fields and by taking up
transnational operations."
COST SHEET
Cost Sheet for Hindustan Petroleum Corporation Ltd for the year 20032004
Rs./ Crores
R.M Consumed 15,017.04
Direct Labour See Assumption 1 280.055
Direct Expense
Excise Duties 5993.47
Prime Cost 21290.565
Factory Overheads
Packages Consumed 79.15
Transshipping Expenses 1228.97
Duties Applicable to Products 317.61
Repairs and maintenance to Plant 165.68
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Rent See Assumption 3 28.65

Repair and maintenance to other assets See Assumption 2 1.633
Electricity and Water 94.93
Power and Fuel 9.17
Rates and Taxes 21.20
Equipment Hire Charges 0.30
Consumption of stores, spares and chemicals 71.08
Depreciation:
Transport Equipment See Assumption 4 2.335
Roads and Culverts 7.16
Leasehold Property 2.45
Railway siding and Rolling stock 12.42
Plant and Machinery 536.24 560.605 2578.978
Work Cost Gross 23869.543
Opening WIP 212.67

Less: Closing WIP 197.68 14.99
Works Cost Net 23884.533
Administrative Overheads
Security Charges 16.67
Depreciation
Building 17.25
Furniture, fixtures and equipments 26.39 43.68
Office appliances Printing & Stationary 7.69
Rent See Assumption 3 28.65
Repair and maintenance to building 11.7
Insurance 40.08
Consultancy and Technical charges 37.26
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Sundry Expenses and Charges 163.04

Office Salaries See Assumption 1 280.055 630.459
Total Cost 24514.989
Add: Opening Finished Goods 3777.2
Add: Purchase of Finished Goods 30583.9 34361.1
Less: Finished Goods 4149.69

Cost of production of Saleable units 54726.399
Selling and Distribution Expenses

Traveling and Conveyance 55.97
Depreciation on transport equipment See Assumption 4 2.335
Advertising & Publicity 81.45 141.388
Cost of Sales 54867.787

Profit 2643.343
Sales 57511.13
Assumptions
1 A bifurcation between factory wages and office salaries has not been given. However the annual
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report says that HPCL has 11088 employees of which 3594 are management employees and 7494 are
nonmanagement employees. Let us assume this to be the distribution of office and factory staff.
However, the management employees have higher salaries. Thus, I have divided Wages, Salaries and
Bonus equally between Direct Labour and Administrative overheads.
2 Repairs and Maintenance to other assets has been equally divided between Factory overheads,
Administrative overheads and Selling and Distribution overheads since the assets have not been
mentioned.
3 Rent is equally distributed as Factory rent and Office rent.
4 We assume that Transport equipment is used for both Factory and Selling and Distribution
purposes. Thus depreciation on transport equipment is equally divided between Factory overheads
and Selling and Distribution overheads.
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On the basis of behaviour of cost

This cost varies according to the output

On the basis of elements of cost

1. All materials specially purchased for production or the process.

Direct Labour or Direct Wages

Direct Expenses or chargeable Expenses

1. Lubricants, cotton waste, Grease, Oil, stationery etc.

OVERHEADS OR ON COST OR BURDEN OR SUPPLEMENTARY COST

Aggregate of indirect cost is referred to as overheads. It arises as a result of overall operation of a

2. Administrative Overheads or Office Overheads:

3. Selling and Distribution Overheads:

DETERMINATION OF TOTAL COST

Purposes of cost sheet

Cost of Production:It represents factory cost plus administrative expenses

TREATMENT OF CERTAIN ITEMS

iii Carriage Inward

Realisable value of byproduct is deducted from factory overheads.

viii Defective Product

COST ACCOUNTING STANDARDS CAS4

Place: Membership No.

COSTING FOR TATA MOTORS

Cost Sheet for Tata Motors for the year 20032004

Following items are excluded from the cost sheet

COSTING OF HINDUSTAN PETROLEUM HPCL

Rent See Assumption 3 28.65

Opening WIP 212.67

Sundry Expenses and Charges 163.04

Less: Finished Goods 4149.69

Selling and Distribution Expenses

Cost of Sales 54867.787

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