Chapter 6

Unit Costing

Introduction
Unit costing is a method of costing based on units of production. It is also known as output costing or single costing. The output is measured in acceptable physical units. It is a simple method of costing employed in industries where the production is continuous and uniform, and a single article is produced in two or more grades. Cost per Unit = Total Cost Number of Units Produced

 The cost sheet prepared under single or output costing method shows the following:
Total cost Cost per unit Previous periods total cost and cost per unit

Cost Unit
Cost Unit should be the unit of measurement in which production is measured, and is being sold. For example:
Breweries Barrel Cement Tone Cable Meter Automobiles No. of automobiles

Features of Unit Costing

Average cost unit computation Single product involved Word-in-progress ignored Applicable to non-continuous manufacturing process industries

Procedure Of Unit Costing

Collection of Costs Cost of Materials Cost of Labour Overheads

Treatment Of Stocks
Stock of Raw Materials
Opening stock of raw material Add: Purchase of raw material Less: Closing stock of raw material = Cost of raw material consumed

Treatment Of Stocks
Treatment of W-I-P: Valued at either prime cost or work cost. Generally, the w-I-P is valued at work cost.
Valuation at prime cost Direct material Add: Direct wages Add: Direct expenses Add: Opening work-inprogress Less: Closing working progress = PRIME COST Valuation at work cost Prime cost Add: Factory overheads = WORK COST

Treatment Of Stocks
Stock of Finished Goods
Work costs Add: Administrative and establishment overheads = Cost of production Add: Opening stock of finished goods Less: Closing stock of finished goods = Cost of finished goods sold

By product, Scraps, Waste and Defectives

Cost Sheet And Production Account

Cost sheet or cost statement is prepared at periodic intervals to record the costs incurred to produce a certain number of units during a given period of time. Sometimes, an exhaustive cost statement is prepared to include item of sales, stocks, and profit. This statement is called as a production or output account. For the determination of total cost of production, a statement showing the various elements of cost is prepared. This statement is called as the statement of cost or cost sheet.

Features Of Cost Sheet

It relates to a particular product. It relates to the costs incurred during a particular period. It may show the total cost as well as the unit cost. It may be based on actual data or estimated data.

Purposes Of Cost Sheet

It gives the breakup of total cost under different elements of costs. It shows total cost as well as cost per unit. It provides data to compare the costs incurred during different periods and with projection or estimation. It facilitates preparation of tenders or quotations. It enables the management to fix up the selling price. It controls costs. It highlights the area where cost control is needed, by studying the cost elements in detail.

Divisions Of Cost
Prime Cost = Direct Material + Direct Labour + Direct Expenses Works Cost / Factory Cost = Prime Cost + Factory Overheads Cost of Production = Factory Cost + Administrative Expenses Total Cost = Cost of Production + Selling and Distribution Expenses Selling Price = Total Cost + Profit(Loss)