This document summarizes the key areas a cost auditor should review regarding material, labor, and overhead costs. For material costs, the auditor should check ordering levels, inventory levels, purchasing procedures, stock records, and payments. For labor costs, the auditor should verify attendance, leave, wages, overtime, and idle time. For overhead costs, the auditor should examine the allocation bases, sample expense items, compare actual to budgeted costs, and check proper allocation between finished and unfinished goods.

1. COST AUDIT OF
MATERIAL,
LABOUR AND
OVERHEADS

2. COST AUDIT OF MATERIAL
1. Enquire whether the minimum quantity or the
ordering level has been fixed by the management
so as to avoid shortage of raw materials and see
that the same is adhered to buy the concerned
department.
2. The cost auditor should ascertain whether the
maximum quantity of raw materials which can
remain in stock at any time has been fixed to
refrain from overstocking and the blockage of the
funds and consequently increasing the cost of
production.

3. 3. Examine the system of inviting tenders or
quotations by the purchase department and see
that orders are placed by the authorised
officials.
4. Check the store ledger with the help of goods
received book .
5. Check the entries in bin cards with the material
received notes as well as with the store
requisitions.
6. Check the postings of the stores requisitions for
direct materials with the relevant cost sheet
7. Verify the payment made to the suppliers of raw
material with the help of material received
notes.

4. 8. Examine the possibility of pilferage in the
production department .The method of dealing
with such losses along with their calculations
should be clearly shown in cost records
9. Ensure that the size of the inventory is adequate
in view of the production program
10. Compare the cost of production of goods with that
of last year and if the cost of production increases
asset in the reason for increased cost

5. COST AUDIT OF LABOUR
RECORDS
1. The cost auditor should see that a proper system
is followed for the attendance of workers at the
main gate of the factory and in the department
and compare the workers attendance card with
the attendance register
2. Check the leave register
3. In case the workers are paid their wages on piece
rate basis compare the piece work cards of the
workers with the stock register and wage sheets

6. 4. Examine the system of overtime work put in by
the workers and payment made there of.
5. Check the calculation of wages, overtime payment
and bonus
6. Study the procedure of wage disbursement among
workers
7. Enquiry into the reasons for idle time if any .The
method of treating the idle time in calculating the
cost of production should be shown by a footnote.
If auditor is not satisfied with the reasons
mentioned for idle time he should qualify his
report for the same.
8. See that the proper allocation of direct and
indirect labour has been made to the different
jobs and units

7. COST AUDIT OF OVERHEADS
The cost auditor should:
1. Enquiry into the basic of allocation of overheads
2. Check few items to judge the accuracy of the
overhead expenses and their proper location to
different jobs
3. See that the actual overheads do not exceed budgeted
cost and over expenditure as for the various cost
sheet and that any variations are satisfactory
explained and accounted for. If not satisfied with
definition qualify the audit report on this account.
4. See that the allocation of overhead expenditure
between finished and unfinished products is based on
accepted principles of cost accounting