Unit Costing

 Unit costing or output costing is that technique of cost accounting in which the cost of production of a unit of output and total cost of production is ascertained. This method is also called the single costing because the process of production comprises only one stage or a single operation. 

For example: brickwork, paper mills, milk dairies etc. 

DEFINITION Walter W. Bigg, “ Unit costing method is a method of costing applied to ascertain the cost per unit of a production where standard and identical products are manufactured.” J. R. Batliboi, “Unit costing or output costing may be defined as, Single or output cost system is used in business were a standard product is turned out and it is desired to find out the cost of a basic unit f production.”  

NAME AND COST UNIT OF SPECIFIC INDUSTRIES: Following are the cost unit of some specific industries: Name of Industry Cost Unit 1 Textile Industry Per Metre 2 Brick Industry Per 1000 Bricks 3 Milk Industry Per Liter 4 Paper industry Per Rim or Per Kg. 5 Sugar Industry Per Quintal 6 Cement Industry Per Ton 7 Wine Industry Per Gallon 8 Mine Industry Per Ton 9 Coal Industry Per Ton 10 Steel Industry Per Ton 

OBJECTIVE OF UNIT COSTING: Following are the main objective of unit costing: 1. To find out the total cost of production for a particular period. 2. To disclose the break-up of total cost i.e. different elements of cost 3. To present comparative cost information and find out the causes of changes in cost. 4. To find out the percentage of each element of cost over total cost. 5. To determine the selling price and tender price. 1 Following are the characteristics of industries which use the unit costing method : 1. Per unit cost determine as single unit. It is helpful to cost manager to comparison among firms production identical goods in different periods. 2. The most important quality of this methods is Cost Equality. In this method eqal cost unit remains equal cost. 3. Production on large scale and continuous. 4. Production units are identical. 5. Cost units are physical and natural and measurement are easily define.  

METHODS OF COST PERSENTATION UNDER UNIT COSTIONG Following are the method of cost presentation under unit costing: 

1. Cost Sheet 

2. Statement of Cost and Profit 

3. Production Account 

COST SHEET: Cost sheet is a statement to show the different components of the total cost. It generally shows the total cost as well as cost per unit. In other words cost sheet is periodical documents and cost design to show the total cost and the unit cost of production in an analytical and detailed form. C. I. M. A. London, “Cost sheet is a document which provide for the assembly of estimated details cost in respect of cost center and cost unit.” Wheldon, “Cost sheets are prepared for the use of management and consequently, they must include all the essential details which will assist the manager in checking the efficiency of production.” TYPES OF COST SHEET Cost Sheet maybe of following two type1. Historical Cost Sheet: This cost sheet is prepared on the historical cost figure i.e. on the basis of cost actually incurred during a period. I is prepared at a regular interval of time, say weekly, monthly, quarterly, half yearly and yearly. 2. Estimated Cost Sheet: Such a cost sheet is prepared prior to the actual commencement of the period of production. Estimated cost sheet is prepared for the purpose of quotation or tender price. FORMAT OF COST-SHEET FORMAT OF SIMPLE COS-SHEET (COST SHEET OF M/S……… FOR THE PERIOD…………….) Output ………… Units Units…….. Particulars Total Cost Cost per unit Direct Material or raw material consumed xx xx Direct labour/ wages xx xx Other direct expenses/ chargeable expenses xx xx Prime Cost xx xx Add: Works or Factory Overhead xx xx Works/ Factory Cost xx xx Add: Office/ Administrative Overhead xx xx Cost of Output/Cost of Production xx xx Add: Selling nad Distribution Expenses xx xx Total Cost/ Cost of Sale xx xx Add: Profit % (n Cos or Selling Price) xx xx Selling Price xx xx Comparative Cost Sheet First period/ product Particulars Second period/ product Total Cost Rs. Cost per unit Rs. Total Cost Rs. Cost per unit Rs. xx xx Direct Material or raw material consumed xx xx xx xx Direct labour/ wages xx xx xx xx Other direct expenses/ chargeable expenses xx xx xx xx Prime Cost xx xx xx xx Add: Works or Factory Overhead xx xx xx xx Works/ Factory Cost xx xx xx xx Add: Office/ Administrative Overhead xx xx xx xx Cost of Output/Cost of Production xx xx xx xx Add: Selling nad Distribution Expenses xx xx xx xx Total Cost/ Cost of Sale xx xx xx xx Add: Profit % (n Cos or Selling Price) xx xx xx xx Selling Price xx xx Detailed format of Cost-Sheet with Profit Cost Sheet for the month ending………. Output ………… Units Units…….. Particulars Total Cost Rs. Cost per unit Rs. Opening Stock of Raw Material …….. …….. Add: Purchase during the ywar …….. …….. Add: Carriage Inward …….. …….. Less: Closing Stock of Raw Material …….. …….. Material Consumed Direct Wages …….. …….. Direct or Chargeable Expeses …….. …….. (A) Prime Cost XXXX XXXX Works or Factory on Cost Indirect Wages } May be % on Prime Cost or on Direct Labour …….. …….. Depreciation on Machine …….. …….. Depreciation on factory building …….. …….. Repair to machine, building etc. …….. …….. Fuel, Electric, Power etc …….. …….. Add: Work in Progress Opening …….. …….. Less: Work in Progress Closing …….. …….. Less: Sale of Scrap, etc. …….. …….. (B) Works or factory Cost XXXX XXXX Office on Cost: May be % on Factory Cost or Works Cost …….. …….. Office Salaries …….. …….. Office Rent …….. …….. Depreciation of Office Building. Furniture, etc …….. …….. Repairs to Office Building, Furniture, etc. …….. …….. (C) Total Cost f Production or Office Cost XXXX XXXX Add: Opening Stock of Finished Goods …….. …….. Less: Closing Stock of Finished Goods …….. …….. (D) Cost of Goods Sold XXXX XXXX Selling nad Distribution Expenses …….. …….. (E)Cost of sales XXXX XXXX Profit (May be % on Total Cost or Sale) …….. …….. (F)Selling Price XXXX XXXX ITEMS NOT INCLUDED IN COST ACCOUNTING: Some items of financial nature, which are not related to cost account, therefore not included in cost account. Such items are given below: (i) Abnormal Loss of material and Labour (ii) Interest paid or received on capital (iii) Interest received on the bank deposited (iv) Expenses on Issue of shares and Debenture (v) Shares transfer fees (vi) Interest received on Investment (vii) Compensation paid on Breach of Contract (viii) Dividend Paid (ix) Income Tax or Wealth tax (x) Goodwill or Preliminary Expenses (xi) Capital gain or Loss (xii) Discount given on the issue of shares and debenture (xiii) Cash Discount (xiv) Amount transferred in Reserve (xv) Obsolescence of tools or loss, etc. (xvi) Interest on debenture STATEMENT OF COST This statement refers to that statement which shows the total cost and profit or loss. This statement not uses to find out the cost per unit. Cost statement is prepared to determine the tender price. Difference between Cost Sheet and Cost Statement Basis of Difference Cost Sheet Statement of Cost Cost It shows total cost and per unit cost. It shows only total cost of production. Volume It is prepared generally when volume of production is given. It is prepared when volume of production not given. Comparative study It is helpful to comparative study of two periods Comparative study of two periods not possible. ITEMS FOR PREPARATION OF COST SHEET AND STATEMENT OF COST: Following are the items which used to prepare the Cost Sheet and statement of Cost:- Material Loss: (a) Normal Loss: it is unavoidable and arise due to nature of material, as evaporation of liquid, loading and unloading loss etc. such normal loss should be ignored and this get automatically charged to output (b)Abnormal Loss: Abnormal losses are that loss which not occurs due to nature of material as loss by fire, loss by theft etc. cost of abnormal loss should be deducted from the value of material purchased and charged from profit and loss account. Wages Loss: (a) Normal Idle time: It is charged to the cost of production because it is inherent in any work situation and cannot be eliminated. (b)Abnormal Idle time: It is occurring due to unanticipated reasons as strike, lockout, etc. the cost abnormal idle time is not including in the cost of production. It is charged in debit side the profit and loss account. Direct Material consumed: If value of material consumed given in the information then there is no need to calculate the material consumed. If the value of material consumed not given in information then it will be calculated as following: Calculation of Material Consumed Amount Amount Opening Stock of Raw Material …….. …….. Add: …….. Purchase of Raw Material …….. Carriage Inward …….. Custom Duty or Octroi Duty …….. Other direct expenses on material …….. …….. Less: ……… Defective material returned …….. Scrap of material …….. Abnormal wastage of material …….. By- product …….. Sale of defective material …….. Closing stock …….. ……… Material Consumed …….. Adjustment of Work-in-Progress (WIP) Work-in-progress refers to partly finished goods i.e. good not yet complete. The value of WIP consist of direct material, direct labor, and manufacturing overhead accumulated to the stage of completion reached at the end of period. Adjustment of work-in-progress can be done as follows: (a)When work-in-Progress Valued at prime cost Amount Direct material …………. Direct Labor …………. Direct Expenses …………. xxxxxxxxx Add: Opening Stock of WIP …………. Less: closing Stock of WIP ………… PRIME COST xxxxxxxxxx (b)When WIP is valued at factory Cost Amount Prime Cost …………. Add: Factory Overhead …………. Add: Opening Stock of WIP …………. xxxxxxxxx Less: closing Stock of WIP …………. FACTORY COST xxxxxxxxxx Note: the valuation of WIP will be done at factory cost if there is no clear instruction given. Adjustment of finish Goods: It adjustment is made after the calculation of Cost of Production; Qty./ Units Amount Cost of Production ……….. Add: Opening Stock of finished Goods ……….. Les: closing Stock of finished goods ……….. Cost of Goods Sold xxxxxxxx Computation of Profit (a) When % of profit given on cost, the following formula is used Profit = Total Cost x % of profit 100 (b)When % of profit given on sale Profit = Total Cost x % of profit 100 - % of profit For example: find out the amount of profit if the total cost of production is Rs. 100000 and (i) profit on cost is 10% and (ii) profit on sale is 10% Sol: (a) Profit = 100000 x 10 = 10000 100 (b) Profit = 100000 x 10 = 11111.11 100 -10 Computation of Gross Profit and Net Profit Gross profit indicates to that profit which we get by the subtraction of cost of gods sold from the amount of sale. Net profit indicates to that profit which we get from the subtraction of selling an distribution expenses from the gross profit. STATEMENT OF PROFIT For the year ended ……….. Sales ………… Less: Cost of Goods Sold …………. Gross Profit xxxxxxx Less: Selling and Distribution Expeses ………… Net Profit yyyyyyy Production Account Production account is a account which presented on the base of double entry system. This account shows the cost of production, alongwith the cost per unit in detailed and analytical matter. All expenses shows in debit side and sales shows in credit side. Format of production account Production or Manufacturing, Trading and Profit and Loss Account For the year ended………. Particulars Amount Particulars Amount To Raw material used ………. Opening stock By Prime Cost c/d ………. Add: Purchase …….. Carriage inward …….. Less: Closing Stock ……... To Direct wages ………. To Direct Expenses ………. xxxxxxx xxxxxxx To Prime Cost b/d ………. By Closing WIP To Work Overheads ………. By sale of Scrap To Opening Balance of WIP ………. byWork Cost c/d xxxxxx xxxxxxx To Work Cost c/d ……… By Cost of Production c/d ……… To Office overhead ……… xxxxxx xxxxxxx To Cost of Production bd …….. By C/S finish Goods To O/S Finish Goods (if any) ……... By Cost of Goods sold c/d To Finish Goods Purchased ……… xxxxxx xxxxxx To Cost of Goods Sold b/d ………. By Cost of Sales c/d ……… To Selling & Distribution Ex ……… xxxxxxx xxxxxx To Cost of Sales b/d ……… By Sales of Finished Goods ………. To Net Profi ………. zzzzzz zzzzzzz Note: Numerical problems may be discuss separatel