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    Unit Costing

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    Ankit Yadav
    The document discusses unit costing, which is a method of costing where identical units of output are produced on a large scale. It provides an introduction to unit costing and examples to illustrate how to calculate cost per unit and selling price per unit under this method.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Unit Costing

    Uploaded by

    Ankit Yadav
    25 views3 pages
    The document discusses unit costing, which is a method of costing where identical units of output are produced on a large scale. It provides an introduction to unit costing and examples to illustrate how to calculate cost per unit and selling price per unit under this method.

    Original Title

    UNIT COSTING

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    The document discusses unit costing, which is a method of costing where identical units of output are produced on a large scale. It provides an introduction to unit costing and examples to illustrate how to calculate cost per unit and selling price per unit under this method.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    25 views3 pages

    Unit Costing

    Uploaded by

    Ankit Yadav
    The document discusses unit costing, which is a method of costing where identical units of output are produced on a large scale. It provides an introduction to unit costing and examples to illustrate how to calculate cost per unit and selling price per unit under this method.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Chapter

    UNIT COSTING

    Introduction
    Unit costing is that method of costing where the output produced is identical and each unit of output
    requires identical cost (homogeneous articles are produced on large scale). Unit costing is synonymously
    known as single or output costing, but these are sub-division of unit costing method. This method of costing
    is followed by industries which produce single output or few variants of a single output. Under this method
    costs, are collected and analysed element wise and then total cost per unit is ascertained by dividing the
    total cost with the number of units produced. If we have to state it in the form of a formula, then

    Total Cost of Production


    Cost Per Unit =
    No. of units Produced

    This method of costing, therefore finds its application in industries like paper, cement, steel works, mining,
    breweries etc. These types of industries produce identical products and therefore have identical costs.

    Illustration 1
    A factory produces 100 units of commodity X?

    Direct Material : 30,000/-


    Direct Wages : 20,000/-
    Direct Expense : 25,000/-

    Factory overheads are charged at 20% of Prime cost.


    Office administration cost are charged at 10% of works cost.
    If a profit of 33.33% on sales is to be realized, what would be the selling price on each article.

    Answer
    Direct Material Cost - 30,000/-
    Direct Labour Cost - 20,000/-
    Direct Expense - 25,000/-
    Prime Cost - 75,000/-
    Factory Overhead (20% of prime cost) - 15,000/-

    Works cost - 90,000/-


    Admin overheads(10% of works cost) - 9,000/-
    Cost of production - 99,000/-
    Profit (1/2 of cost ) - 49,500/-
    Sales value - 148,500
    Selling price per unit -148,500/100 units = 1485/-

    Prepared by: Raman Luthra


    Chartered Accountant
    Illustration 2

    Atharva Pharmacare Limited produced a uniform type of product and has a manufacturing capacity of
    3,000 units per week of 48 hours. From the records of the company, the following data are available relating
    to output and cost of 3 consecutive weeks?

    Week Units Direct Direct Factory


    Number Manufactured Material (`) Wages (`) Overheads (`)
    1 1,200 9,000 3,600 31,000
    2 1,600 12,000 4,800 33,000
    3 1,800 13,500 5,400 34,000

    Assuming that the company charges a profit of 20% on cost of production, FIND OUT the selling price per
    unit when the weekly output is 2,000 units

    Answer:

    Direct Material Cost (2000x7.5) - 15,000/-


    Direct Wages Cost (2000x3) - 6,000/-

    Prime Cost - 21,000/-


    Factory Overhead - 35,000/-
    Fixed -25,000
    Variable(2000*5) -10,000
    Works cost/cost of production - 56,000/-
    Profit (20% on cost ) - 11,200/-
    Sales value - 67,200
    Selling price per unit -67,200/2000 units = 33.60/-

    Working Note
    1. Direct material cost = 9000/1200 = 7.5 per unit
    2. Direct wage cost = 3600/1200 =3.0 per unit
    3. Factory overheads
    1,200 – cost is 31,000
    1,600 – Cost is 35,000

    Variable part in factory overheads = (35,000 – 31,000)/400 = 5/-


    Fixed part in factory overheads = Total cost – variable part
    = 31,000 – 6000 (1200*5)
    = 25,000/-

    Prepared by: Raman Luthra


    Chartered Accountant
    Multiple Choice Questions

    1. [Question] Calculate the prime cost from the following information:


    Direct material purchased: Rs. 1,00,000
    Direct material consumed: Rs. 90,000
    Direct labour: Rs. 60,000
    Direct expenses: Rs. 20,000
    Manufacturing overheads: Rs. 30,000?

    a) 1,70,000
    b) 1,80,000
    c) 2,00,000
    d) 2,05,000
    e) 2,10,000

    Answer: a.

    2. [Question] Unit Costing is applicable where ?

    a) Product produced are unique and no 2 products are same


    b) Dissimilar articles are produced as per customer specification
    c) homogeneous articles are produced on large scale
    d) Products made require different raw materials
    e) heterogeneous articles are produced on large scale

    Answer: c.

    Prepared by: Raman Luthra


    Chartered Accountant

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