unit costing

Notebook: costing
Created: 24-12-20 07:20 PM Updated: 04-01-21 12:57 PM
Author: rawatpankajpunk29@gmail.com
Tags: unit costing

Unit costing is a method of costing. This method is used:

1. In industries producing identical products or a single article on a large scale
2. Where manufacturing process (i.e. production) is uniform
3. Where cost units are having identical costs
Ascertainment of cost per unit is to be arrived at by dividing total cost by
number of units. Unit costing is suitable for industries manufacturing
homogeneous products like sugar, bricks, cement works, collieries
and breweries.

COST SHEET
Cost sheet is a periodical statement of cost depicted to show in detail the
various elements of cost, namely, prime cost, works cost, cost of production,
cost of sales.
(1) historical cost sheet and (2) estimated cost sheet

Historical cost sheet is to be prepared after the costs have been incurred.
Estimated cost sheet is prepared before the commencement of
production.

Different formula for cost sheet-

The prime cost consists of cost of (1) raw materials, (2) direct labour and (3)
direct expenses. But as per CIMA
terminology, “direct expenses” have been excluded from prime cost.

The works cost consists of prime cost +works (factory) overheads.

The cost of production consists of works cost + office and administration

overheads.

The total cost (or) cost of sales consists of cost of production + selling and
distribution overheads 
Exclusion of Certain Items from Cost Sheet
Donations
Cash discount
Interest paid
Income tax paid
Dividend paid
Preliminary expenses written off
Goodwill written off
Profit or loss on sale of assets
Transfer to reserves
Provision—for taxes, bad debts etc.

PRODUCTION ACCOUNT
Items are to be included:
1. Finished goods inventories
2. Sales and
3. Profit or loss

PRODUCTION ACCOUNT VS COST SHEET

Cost sheet is statement where as latter is ledger account and follows dual
entry system.

PREPARATION OF A COST SHEET

1. STOCK

ADD 
Opening stock of raw materials 
 Purchase of raw material

Less:
 Closing stock of raw materials 
Value of raw materials consumed

EX-
Calculate the value of raw materials consumed, from the following data:

Raw materials purchased 70,000

Opening stock of raw materials 15,000
Closing stock of raw materials 35,000

70K+15K-35K=50K

2.Stock of Work-in-Progress
Work-in-progress means units (products) which are not yet completed but
manufacturing process has been initiated,
that is, semi-finished goods. Work-in-progress is valued either as prime cost
basis or works cost basis. In
practice, mostly it is valued at works cost.CAL

Prime Cost 
Add
 Factory overheads 
 Work-in-progress (beginning) 

Less:
Work-in-progress (closing) 

EX -
Compute the works cost from the following:

Materials 40,000
Labour 30,000
Direct expenses 15,000
Factory overheads 35,000
Work-in-progress:
Opening stock 17,000
Closing stock 7,000

PRIME COST=40K+30K+15K=85K
WORK COST=85K+35K=120K(CHECK COST SHEET FORMULA ABOVE)

WORK IN PROGRESS-
120K+17K-7K=130K

3.Stock of Finished Goods-

Opening stock and closing stock of finished goods have to be adjusted before
computing the cost of goods sold
Cost of production .

Add: Opening stock of finished goods .….

Less: Closing stock of finished goods 

EX
Calculate the cost of goods sold, from the following:

Cost of production 85,000

Opening stock (finished goods) 15,000
Closing stock 25,000
Solution
Rs.
Cost of production 85,000
Add: Opening stock 15,000
                              1,00,000
Less: Closing stock 25,000
Cost of goods sold 75,000

4.Computation of Profit

Cost price + Profit = Selling price

EXAMPLE QUESTION FOR COST SHEET

X Ltd manufactures a consumable product. From the following data relating to
a year, you are required to prepare
the cost sheet.
Rs.
Materials (opening) 30,000
Materials (closing) 25,000
Work-in-progress (opening) 50,000
Work-in-progress (closing) 55,000
Finished goods (opening) 60,000
Finished goods (closing) 80,000
Materials purchased during the year 1,20,000
Direct labour 90,000
Manufacturing overhead 80,000
Selling expenses 40,000
General expenses 32,000
Sales 3,92,000

NOTE-

Example production account -

Prepare a production account for March 2010 from the following particulars
showing the final cost per unit
produced.

Materials purchased 2,00,000

Wages 1,50,000
Manufacturing expenses 25,000
Sale of materials (not suitable) 5,000
Inventories:
Materials: Opening 15,000
Closing 10,000
Work-in-progress:
Opening 20,000
Closing 10,000
Finished goods:
Opening: 1000 units at Rs. 60 each
Closing: 2000 units at current cost
Administration expenses 50,000
Selling overheads 30,000
Output during the month was 6,000 units
Sales for the month 5,000 units at Rs. 100 each
TREATMENT OF SCRAP
1. Scrap is residue arising in a manufacturing process.
2. Its quantity is small and value is low.
3. It is mostly recoverable without further processing.
4. Any realization by sale of scrap is deducted from gross works cost or works
overheads.
5. Materials found to be defective before undergoing process should be sold
and deducted from the cost of such
materials.
6. Loss on sale of such materials is to be charged to costing profit and loss
account