Output costing is also known as unit costing, single costing, process costing or operation costing.
This costing method is used in those manufacturing companies where standard or similar products are produced through a single process.
This method is also applicable where production is uniform and continuous.
This method is suitable to industries of mines, collieries, breweries, flour mills, brick factories, cement factories, paper mills, sugar mills, pencils manufacturing, cigarettes company, dairy products, steel works etc.
The total cost of the product is ascertained by accumulating all the elements cost like prime cost, factory cost, office or administrative cost, selling and distribution cost.
The output units must be a standard unit like a ton, a quintal, a kilogram etc.
The formula of total cost per unit
Total cost per unit = Total cost ÷ Output units
Unit costing is important because of the following reasons:
It shows the total cost and cost per unit of production during a period.
It helps the manufacturers to control the cost of production.
It helps the management in fixing up the selling price of their products.
It acts as a guide to the manufactures.
It helps the management for comparative study of the various costs with past data.
It helps to minimize the cost of production when there is competition.
It helps the businessmen to submit a quotation for tender work etc.
The main limitations of unit costing are as follows:
It is not useful to those industries where the production is not uniform.
It is not suitable for process production.
It cannot be used by those industries, which are engaged in service providing.
The secrecy of cost cannot be maintained because the cost is shown in every stage etc.
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For determination of selling price, the profit should be determined first.
The profit percentage may be on cost price or selling price in cost sheet.
Formula of profit on cost sheet
Profit on cost = Total cost x (Profit % ÷ 100)
Profit on sales = Total cost x [Profit % ÷ (100 – Profit %)]
The statement of cost according element-wise is known as the cost sheet.
It shows the details of the total cost of a job. It also shows the total cost per unit.
Cost of materials used
Prime costs
Factory costs (manufacturing cost, work cost, production cost)
Cost of production
Total cost or total cost
Profit
Sales
Particulars |
Amount |
Amount |
Direct material |
|
xxx |
Direct labour |
|
xxx |
Direct expenses |
|
xxx |
Prime cost |
|
xxx |
Add: Factory expenses or work cost |
|
xxx |
Factory cost |
|
xxx |
Add: Office or administrative expenses |
|
xxx |
Cost of production |
|
xxx |
Add: Selling and distributing expenses |
|
xxx |
Total cost or cost of sales |
|
xxx |
Add: Profit |
|
xxx |
Sales |
|
xxx |
Or
For ……….. units
Particulars |
Amount |
Amount |
|
Opening stock of raw materials |
|
xxxx |
|
Add: |
Purchase |
|
xxxx |
|
Carriage on purchase (carriage inward, purchase expenses) |
|
xxxx |
Less: |
Closing stock of raw materials |
|
(xxx) |
|
Raw materials consumed or used |
|
xxxxx |
Add: |
Direct materials |
|
xxxx |
|
Direct or productive labour (wages) |
|
xxxx |
|
Direct expenses |
|
xxxx |
|
Prime cost |
|
xxxxx |
Add: |
Factory overheads: |
|
|
|
Indirect/Unproductive wage |
xxxx |
|
|
Indirect materials |
xxxx |
|
|
Consumed store |
xxxx |
|
|
Estimating expenses, drawing |
xxxx |
|
|
Rent, rates, phone/mobile/internet expenses |
xxxx |
|
|
Lighting, heating, power |
xxxx |
|
|
Salary to general staff, Manager or director salary |
xxxx |
|
|
Depreciation on factory machine, furniture and building |
xxxx |
|
|
Repairs and maintenance |
xxxx |
|
|
Stationery |
xxxx |
|
|
Other factory expenses |
xxxx |
|
Less: |
Scrap sold |
(xxx) |
|
Add: |
Opening work-in-progress |
xxxx |
|
Less: |
Closing Work-in-progress |
(xxx) |
xxxx |
|
Factory or Work Cost |
|
xxxxx |
Add: |
Office overheads: |
|
|
|
Establishment charge |
xxxx |
|
|
Manager or director salary |
xxxx |
|
|
Salary to office staff |
xxxx |
|
|
Rent, rates and tax |
xxxx |
|
|
Stationery, postage, phone/mobile/internet expenses |
xxxx |
|
|
Bank charge, audit fee, Insurance |
xxxx |
|
|
Depreciation on office equipment, furniture and building |
xxxx |
|
|
Repairs and maintenance |
xxxx |
|
|
Other office expenses |
xxxx |
|
|
Cost of Production |
? |
xxxxx |
Add: Less: |
Opening stock of finished goods Closing stock of finished goods |
? ? |
xxxx xxxx |
|
Cost of Goods Sold |
– |
xxxxx |
Add: |
Selling and distribution overheads: |
– |
|
|
Carriage outward (on sales) |
xxxx |
|
|
Packaging (secondary) |
xxxx |
|
|
Advertisement or free sample |
xxxx |
|
|
Salary and commission to sales agent or boy |
xxxx |
|
|
Rent to warehouse or godown |
xxxx |
|
|
Stationery, postage, phone/mobile/internet expenses |
xxxx |
|
|
Insurance of warehouse |
xxxx |
|
|
Depreciation on warehouse and delivery van |
xxxx |
|
|
Repairs and maintenance |
xxxx |
xxxx |
Cost of Sales or Total Cost |
|
xxxxx |
|
Add: Profit |
|
xxxx |
|
Sales |
|
xxxxx |
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