Uses & Benefits of Cost Sheet
1. Determination of Cost: The main purpose of the cost sheet is to provide the management with relevant cost data so that the accurate cost of the product can be ascertained. The cost sheet provides data related to costs incurred at every production stage, which helps in ascertaining the total cost and the cost per unit of the product.
2. Determination of Selling Price: The cost sheet plays a very important role in fixing the selling price of the product. Since the cost sheet provides a detailed breakdown of the cost incurred in the production of a particular product, it enables the business to formulate a pricing policy that not only covers all the expenses incurred but could also generate an optimal profit margin. Accurate cost data from the cost sheet helps to set a competitive pricing strategy.
3. Comparative Study of Cost: The cost sheet also facilitates the comparative study of the cost of the current period with that of the previous period for the same item. Comparison of cost helps the management to understand how the cost varies over time. By comparing costs, management can easily identify areas where cost control and reduction are needed and can take corrective measures accordingly.
4. Cost Control and Reduction: The cost sheet provides in-depth details of the cost incurred by the firm from the production of a product to its sale. It helps the business to monitor and manage its expenses. Through studying a cost sheet, a business can identify the areas where the cost needs to be controlled and reduced. It helps the business to make an informed decision to optimize performance and improve profitability.
5. Decision Making: The cost Sheet helps the business greatly in the decision-making process. Cost Sheet provides all the information related to the cost of production. It helps the business in formulating strategies related to pricing, production, and resource allocation. After considering the cost sheet, the business makes various decisions such as increasing or decreasing the production of a particular product, purchasing equipment, quoting the price in the tender, and implementing cost-saving measures.