by Cost Sheet:
A cost sheet is a statement that shows the various costs that are incurred in the production of a product or service. It includes the direct cost of materials, labor, and overheads, as well as indirect costs such as administrative and selling expenses. The cost sheet is prepared by the company’s accounting department and provides a detailed breakdown of all costs associated with the production process. The cost sheet is an important tool for management to control costs and determine the profitability of a product or service.
Tender Price:
A tender price is the price that a contractor or supplier quotes for a project in response to a tender or request for proposal (RFP). The tender price is the total cost that the contractor expects to incur in completing the project, including all direct and indirect costs such as labor, materials, overheads, and profit. The tender price is usually submitted in a sealed envelope and is opened in the presence of all bidders at a predetermined time and date. The tender price is an important factor in determining the winning bidder for a project.
Important Items Regarding Preparation of Statement of Cost and Cost Sheet
The preparation of a statement of cost and cost sheet requires attention to several important items, including:
- Direct Materials: The cost of direct materials used in the production process should be included in the statement of cost and cost sheet. Direct materials are the raw materials that are used to make the finished product.
- Direct Labor: The cost of direct labor, which includes wages, salaries, and benefits paid to workers directly involved in the production process, should also be included in the statement of cost and cost sheet.
- Overheads: The overhead costs incurred in the production process, such as rent, utilities, depreciation, and maintenance, should be allocated to the cost of the product. The method of overhead allocation should be specified clearly in the cost sheet.
- Indirect Costs: Indirect costs, such as selling, administrative, and research and development expenses, should also be allocated to the cost of the product. These costs are not directly related to the production process but are necessary for the business to operate.
- Cost per Unit: The cost per unit should be calculated by dividing the total cost of production by the number of units produced. This is an important metric for determining the profitability of the product and setting a selling price.
- Profit Margin: The desired profit margin should be added to the cost per unit to arrive at the selling price of the product. The profit margin is the amount by which the selling price exceeds the cost per unit.
- Accuracy and Consistency: It is important to ensure that the statement of cost and cost sheet are accurate and consistent. The same costing methods should be used consistently for all products to ensure that the costs are comparable.
Preparation of Cost Sheet and Tender Price process
The preparation of a cost sheet and tender price involves the following process:
- Collect Data: The first step in preparing a cost sheet and tender price is to collect all the data related to the project, including the direct and indirect costs, overheads, and profit margin. The data can be obtained from previous projects, vendor quotations, or from the company’s internal records.
- Classify Costs: Once the data is collected, the costs should be classified as direct or indirect costs. Direct costs are those that can be directly attributed to the project, such as labor and materials. Indirect costs are those that are necessary for the project but cannot be directly attributed to it, such as overheads and administrative expenses.
- Allocate Overheads: The overhead costs should be allocated to the project based on a predetermined method of allocation, such as labor hours or machine hours.
- Calculate Total Cost: The total cost of the project can be calculated by adding the direct costs, indirect costs, and allocated overheads.
- Add Profit Margin: A profit margin should be added to the total cost to arrive at the tender price. The profit margin is typically a percentage of the total cost and should be determined based on the company’s desired profit margin.
- Verify Accuracy: The cost sheet and tender price should be verified for accuracy to ensure that all costs have been included and that the calculations are correct.
- Present to Client: The cost sheet and tender price should be presented to the client along with a detailed proposal outlining the scope of work, project timeline, and any other relevant information.
Calculation of Tender, Quotation and Estimated price formula with example
Tender, quotation, and estimated price are all different ways of determining the price of a project. The formulas for calculating these prices are as follows:
Tender Price = Direct Cost + Indirect Cost + Profit Margin
Quotation Price = Direct Cost + Indirect Cost + Markup
Estimated Price = Actual Cost + Contingency Allowance
Let’s look at an example of how these formulas can be applied:
Example:
A construction company is bidding on a project to build a new office building for a client. The project requires 10,000 square feet of construction and is expected to take 12 months to complete. The company has estimated the following costs for the project:
Direct Costs:
Labor: $300,000
Materials: $500,000
Indirect Costs:
Overheads: $200,000
Administrative Costs: $50,000
Profit Margin:
15% of total cost
Contingency Allowance:
10% of actual cost
Using the formulas above, we can calculate the tender, quotation, and estimated prices for the project as follows:
Tender Price = Direct Cost + Indirect Cost + Profit Margin
= $300,000 + $500,000 + $200,000 + $50,000 + (15% x ($300,000 + $500,000 + $200,000 + $50,000))
= $1,265,000
Quotation Price = Direct Cost + Indirect Cost + Markup
= $300,000 + $500,000 + $200,000 + $50,000 + (25% x ($300,000 + $500,000 + $200,000 + $50,000))
= $1,375,000
Estimated Price = Actual Cost + Contingency Allowance
= ($300,000 + $500,000 + $200,000 + $50,000) + (10% x ($300,000 + $500,000 + $200,000 + $50,000))
= $1,155,000
