As businesses take on new projects and run their day-to-day operations, they need to track how much they spend along the way. A cost statement or cost sheet provides management a document that details the costs of conducting a project, running a department or manufacturing a product in terms of goods and services.
Most cost sheets contain a minimum of three primary sections labeled direct materials, direct labor and overhead. Direct materials refer to the raw materials or parts necessary to make the actual product. On a construction project, for example, plywood and roofing material would appear in the direct materials section. Direct labor refers to the required labor needed to complete the project. Overhead consists of standard costs associated with carrying out the project, such as insurance and utilities. Some cost sheets include sections such as indirect labor, which covers support staff, and indirect materials, which represent a negligible expense. Management determines the level of detail required, which can range from a single sum per category to a detailed list in every category.
In some instances, businesses employ full cost statements to compare potential ways to implement a project. Full cost statements are a comprehensive overview of internal expenses as well as the possible external costs of one choice over another. For example, paper mills are notorious for strong odors. Placing a paper mill too close to a residential area could yield bad PR and even legal actions, which could offset savings on property or construction. A full cost statement details these potential problems.
