Unit or Output Costing-I

(Cost Sheet ,Cost Statement and Production Account)

Meaning

• Unit or Output costing is used in those industries or organisations where standard products are produced from a common process and all the units produced are more or less similar to each other.

• This method is also known as “Single Costing Method”.

Definition of Unit or Output Costing

“Unit Costing method is a Method of costing applied to ascertain the cost per unit or production where standard and identical products are manufactured.

Walter W.Bigg.

Charachterstics of Unit Production

• Production should be uniform or Homogeneous

• Identical products• The cost unit should be physical /natural• Per Unit cost should be determined ,for eg.Per

ton, per metre etc.

Objectives of Unit /Output Costing

• To know the totsl cost of production• To classify cost under related categories such as prime

cost,works cost etc.• To determine the effect of each element of cost• To compare cost during two or more periods• To determine proposed setting price to earn desired profit• To Determine tender price on the basis of Cost Data and

Fututre prospects.

Elements of cost under Unit /Output costing

• Materials• Labour• Direct expenses• Overheads

Methods of determining Unit Cost

1) Cost Sheet2) Statement of Cost3) Production Account

Cost Sheet

• Cost sheet is a statement which is used to determine the total cost of goods produced in a specific Period and in which total cost,per unit cost and cost incurred at various stages from manufacturing a products to the stage of making it saleable are shown.

Definition of Cost sheet

• “Cost Sheets are prepared for the use of management and consequently they must include all the essential details which may assist the manager in judging the efficiency of Production.”

Facts about Cost sheet

• Total Quantity of production• Total cost of total quantity produced• Per unit cost of total quantity produced• Various components of cost at various stages of

Production i.e. Prime cost,factory cost• Direct and Indirect cost of production• Comparative cost of two productsand its analysis• Proportion of each individual cost to total cost

expressed in percentage.

Advantages of Cost sheet

• Determination of selling Price• Control on Expenses• Help in Minimising the Expenses• Comparative study of Cost• Benefit to common man

Difference between Cost Account and Cost Sheet

Cost Account• Double Entry System• Used in

ProductionA/cs,Process A/cs• No help in making comparison• No ascertainment of Cost per

unit• Helpful in Reconciliation• Based on cost sheet• Cost Accounts are not helpful

in control and Guidance

Cost Sheet• No Double Entry System• Used Monthly,weekly• Helpful in knowing

Comparisons• Ascertain Cost per Unit• No help in Reconciliation• Cost sheet helps in cost

control and guidance

Types of Cost Sheet

1) Simple Cost Sheet2) Cost Sheet with Profit3) Cost Sheet with Statement of Profit4) Comparative Cost Sheet

1.)Simple Cost Sheet (for Month---) Units------

Particulars Total Cost (Rs.) Cost Per Unit(Rs.)

Direct MaterialDirect WagesDirect or Chargeable Expenses

--------------

---------------

(A) Prime Cost ------- ------

Work Overhead /Factory Overhead

------- ------

(B) Works Cost------- -------

Office Overhead ------- -------

(C) Cost of Production ------- -------

Selling and Distribution Expenses

------- -------

(D) Total Cost ------ -------

2.)Cost Sheet with Profit Cont…Particulars Total Cost (Rs.) CostPerUnit(Rs.)

Opening stock of Direct Raw Material ----Add: Purchases during the Year ----Add : Incidental Expenses(Carriage , Freight,Octroi , Custom Duty) ----Less: Closing Stock of Direct Raw Material -----Less: Defective Materials ReturnedLess: Residue used in other products Cost of direct raw material consumedDirect Wages/Labour Charges or Productive WagesDirect Expenses /Chargeable Expenses

(A) Prime Cost ------- ------

Add: Work Overhead /Factory Overhead Factory Oncost/Un Productive LabourIndirect Wages/Unproductive Labour(Fuel,Power,coal,Light & water,Factory Insurance,Rent of factory,Dep. On Factory Building/machine Repairs on factory Building /machine

------- ------

Cost Sheet with Profit cont…Particulars Total Cost (Rs.) CostPerUnit(Rs.)

Add: Opening Stock of work in progressLess: Closing Stock of Work in ProgressAdd: Additional Overburden on RectificationLess: Sale of Scrap/Defective etc.

Factory /Works Cost ------- ------

Add:Office and administrative Overheads/Office expLegal Expenses,Office Expenses,Office salaries,office Lighting,Adm. Expenses,Printing and stationery,fees of Directors,telephone &Telegrams,Managing Director’s Salary(office),Dep.on Office building/furniture,Repairs to office building/Furniture

------- ------

Office Cost or cost of Producion ------ ------

Add: opening stock of Finished GoodsLess: Closing Stock of Finished Goods

Cost of Goods Sold ------ ------

Cost Sheet with Profit cont…Particulars Total Cost (Rs.) CostPerUnit(Rs.)Add: Selling & Distribution Overheads:AdvertisementDiscountTravelling ExpensesSalesman CommissionDep.On Delivery VansPacking and Distribution ChargesBad DebtsUpkeep of Delivery VansWarehouse Rent,etc.

Cost of Sales ------- ------Profit( certain % on total cost or sales) ------- ------

Selling Price ------- --------

3.)Cost Sheet with statement of profitsParticulars Total cost (Rs.) Cost per unit ( Rs.)

Direct MaterialDirect WagesDirect or Chargeable Expenses

Prime Cost ------- --------

Factory /Works Overheads:Factory ExpensesLightRent of Factory Unproductive wages

Factory/Works Cost

Office and Administrative Overheads:Office Salaries,Office Rent Dep. On Office Building & EquipmentGeneral Expenses etc.

Cost of Production

Statement of profits Particulars Total cost (Rs.) Cost per unit (Rs.)

Cost of Production for ---units@rs.----perunit

--------- -------

Selling and distribution overheads:Selling Expenses Bad DebtsDiscountAdvertisement etc.

-------- -------

Cost of Sales ------ --------

Profit ------- --------

Sales/Selling Price -------- ---------

4.)Comparative Cost SheetPeriod/Product Period/Product

Total cost(Rs.)

Cost per unit(Rs.)

Particulars Total cost (Rs.)

Cost per unit (Rs.)

---- ----- Direct Material,Direct Wages,Direct or Chargeable Expenses

--------- -------

(A) Prime Cost

------ Work Expenses:Fuel,Electric Power ,Repairs,Depreciation,Rent)

-------- -------

------ (B) Work Cost ------ --------

------ Office Expenses,Office salaries,office lighting ------- --------

------ (C) Total Cost -------- ---------

` Profit(% on Cost Price or Sales Price)

(D) Selling Price ------ -------

Statement of Cost

• Statement of Cost is a memorandum statement which is not made according to the double entry system. It is a statement which is made for calculating total cost, per unit cost and budget cost of product. All elements of cost in statement of cost are taken from financial accounting's historical records. In cost sheet per unit cost of each item of expense is calculated whereas in statement of Cost it is not done.

Components of Cost

• Prime Cost• Factory/Works Cost• Office and administration cost• Total Cost

Prime Cost

• Prime cost is the main element of cost of any product.It is also called “Direct cost”, “ First Cost”, “ Flat Cost”.

• Prime Cost= Direct Material + Direct Wages+Direct Expenses

Factory Cost

• Factory overheads includes the expenses which are of indirect nature and are incurred in factory or production process or in operating and controlling production activity.

• Factory/Works Cost =Prime Cost + Factory Overheads

Office and administration cost

• The expenses which are incurred in operating and controlling the business are included in Office and administration cost . Expenses incurred on effective functioning and maintenance of business ,policy creation and implementation are termed as office and administrative expenses.

• Rent,rates and tax of office building,expenses on Light and Cleaning of office premises etc.

• Cost of Production=Factory cost+Office and administration cost

Total Cost

• When selling and distribution expenses are added in cost of production , then cost arrived is known as Total Cost.

• Expenses of sales office , salary &commision allowed to sales manager ,travelling expenses of sales representative,Advertisement,Bad Debts,Price-List,Samples ,gifts,Discount allowed to customers etc.

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