MEANING• Single or output costing is a method of costing by the UNIT OF PRODUCTION.• It is adopted by concerns producing a single article on a large scale by a continuous process of manufacture, and all the units produced are identical and homogeneous.
UTILITY• Thus Single or output costing is employed in case of industries where: 1) The production is uniform and continued affair 2) The units of production are identical 3) The cost units are physical or units of production are capable of being expressed in convenient unit of measurement.• Examples: sugar mills, paper mills, dairies, cement works, quarries, etc• There is a cost unit such as : tonne of coal or cement or sugar, a gallon of milk etc
Costing Procedure• Analysis of the different elements of expenditure to determine: • prime cost, • factory cost, • office cost and • total cost.• Determination of per unit cost – Total expenditure divided by the quantity produced.• Classification of expenditure at regular intervals e.g. monthly, quarterly or half-yearly• Preparation of COST SHEET• Comparative figures of preceding period are provided
ELEMENTS OF COSTDirect Direct Direct OverheadMaterial Labour Expenses Selling & Factory Administrative Distribution Overhead Overhead Overhead Indirect Indirect Indirect Material Labour Expenses
Components of Total Cost• Prime Cost = Direct Materials + Direct Labour + Direct Expenses.Factory/Works Cost = Prime Cost + FactoryOverheadsCost of Production = Works Cost + Administration OverheadsTotal Cost or Cost of Sales = Cost of Production + Selling & Distribution Overheads The difference between the cost of sales and selling price represents profit or loss.
Cost Sheet• A cost sheet is a statement that provides a logical, detailed and systematic presentation of various elements of cost information obtained through the cost records.It is a statement designed to show the output of a particular accounting period alongwith break-up of cost.
Cost Sheet• It discloses the total cost and cost per unit.• It helps 1. To estimate cost 2. To fix Selling Price. 3. To submit quotation price/tender price. 4. To Control cost.
Direct Materials Cost• It is the cost of materials which can be identified with and allocated to cost units or cost centres.• Includes cost of: a. Raw materials b. Parts or components c. Materials purchased specially for a job, process, work order d. Primary packing materials. e. Material procurement expenses such as carriage, import duty, freight, octroi charges.
Direct Labour Cost• It is the remuneration of workers/employees who are directly engaged in the production of the product• It includes: a. Wages, salaries, bonus, DA, city compensatory allowance, overtime wage etc of labour engaged in actual production including supervision, inspection and analysts engaged in a particular job b. Fringe benefits like leave salary, PF contribution, gratuity
Direct Expenses All such expenses (other than direct material and direct wages ) as have been specifically incurred for a job, process, or product line and can be identified with and allocated to cost centres or cost units. Examples :a. Cost of special designs, moulds, blue-printsb. Experimental/trial expensesc. Hire charges of special equipmentd. Fees paid to architects, consultants and surveyors for specific jobe. Royalties for land, mine, trademark
FACTORY/WORKS OVERHEADS• Power, fuel ,coal, gas, water.• Lighting, heating ,cleaning, haulage, cooling.• Cleaning and oiling of machines.• Rent, rates, taxes, insurance of the factory.• Repairs, maintenance, depreciation of factory building, equipment, plant and machinery.• Supervision, surveying, testing and inspection expenses• Salaries and wages of time-keepers, watchmen, gate- keepers, foremen, works manager.• Procurement expenses of materials, spares & loose tools• Storage costs• Drawing & designing expenses• Training costs• Rectifying defective products.
ADMINISTRATION OVERHEADS• Remuneration of office staff.• Office rent, lighting, postage, telephone.• Directors and General Managers fees & remuneration• Salaries of secretary & accountant• Auditors’ fees• Legal fees & consultants’ charges• Repairs , maintenance, insurance and depreciation of office furniture, equipment, vehicles & building.• Bank charges.
SELLING AND DISTRIBUTION OVERHEADS Selling Overheads• Selling and commission of salesmen & agent• Travelling expenses• Free samples• Showroom & display expenses• Advertising & publicity• Trade fairs & Exhibition• Packing expenses• Carriage & freight on goods sold• Discounts, bad debts & collection charges• Sales office –rent, salaries, electricity, stationery, postage & telephone.• Repairs, maintenance, insurance & depreciation of assets.
SELLING AND DISTRIBUTION OVERHEADS Distribution Overheads• Rent, insurance & other expenses on warehouses & godowns.• Depreciation of handling equipment & warehouse building.• Repairs, insurance, depreciation and running expenses of delivery vans.• Freight, insurance and carriage on goods sent to warehouses.• Salaries of godown keepers & other staff in warehouses.
Items Excluded From Cost Records• The total cost of a product should include only those items of expenses which are a charge against profit.• Items which are relating to capital assets, capital losses, payments by way of distribution of profits and matters of pure finance would not form part of the costs.
Items Excluded From Cost Recordsa. Cost of raising loans and finance – discount on issue of debentures and shares, underwriting commission and brokerage paid on such issues.b. Interest on debentures, loans, interest received on investments.c. Losses or gains of capital nature or on sale of fixed assets, writing off goodwill, preliminary expenses written off.d. Capital expenditure i.e. fixed assets purchasede. Incomes such as, property rent, dividend received, transfer fees etc. Cont……
Items Excluded From Cost Recordsf. Appropriation of profits such as : dividend paid, transfers to various reserves, provisions for sinking funds for replacement of assets, income tax.g. Unusual expenses like expenses on shifting the business to a new building.h. Cash discounti. Abnormal idle time, excessive depreciation.j. Items of expenses and incomes of purely financial and non-operational nature eg income tax and donations
Particulars Total Cost Cost Per UnitDirect Materials XXX XXXDirect Wages XXX XXXOther Direct Expenses XXX XXXPrime Cost XXX XXXAdd: Factory/Works overhead XXX XXXFactory Cost XXX XXXAdd: Administrative overheads XXX XXXCost of production XXX XXXAdd:Selling & Distribution overheads XXX XXXCost of Sales XXX XXX
Example 1 Rs. Rs.Direct materials 80,000 Lighting-Factory 1,000Direct wages 40,000 -Office 400Indirect wages 10,000 Carriage outward 300Direct Expenses 12,000 General selling Expenses 2,000Electric Power 1,000 Storeskeeper’s wages 1,200Depreciation of Office 1,000 Office Printing & 500Building StationeryDepreciation of Plant and 2,000 Travelling Expenses 1,000MachineryDirector’s fees 2,000 Telephone charges 800Oil And Waste 200 Rent – Factory 2,000Lubricants 300 - office 1,000Consumable stores 1,000 Manager’s Salary 3,000Bad Debts 2,000 General factory Expenses 500Postage & Telegraph 500
Treatment of stock Stock may be of • Raw material • Work-in-Progress • Finished Goods
Stock of Raw Materials• Raw Materials consumed is computed as follows: Rs. Opening stock of raw materials XX Add: Purchases (including expenses on purchase XX XX Less: Closing Stock of Raw Materials XX Cost of Raw Materials consumed XX
Particulars Total Cost Cost Per UnitDirect Materials consumed XXX XXXDirect Wages XXX XXXOther Direct Expenses XXX XXXPrime Cost XXX XXXAdd: Factory/Works overhead XXX XXXFactory Costy XXX XXXAdd: Administrative overheads XXX XXXCost of production XXX XXXAdd:Selling & Distribution overheads XXX XXXCost of Sales XXX XXX
Stock of Work-In-ProcessWork-in-process(W-I-P) refers to units on which somework has been done but which are not yet complete.Adjustment of opening W-I-P and closing W-I-P is asfollows: Rs. Prime Cost XX Add: Factory overhead XX Add: Opening W-I-P XX Less: Closing W-I-P XX Factory Cost XX
Stock of Finished Goods Rs.Cost of Production XXAdd: Opening Stock of Finished Goods XX XXLess: Closing Stock of finished Goods XXCost of Goods Sold XX
Cost sheet for the period…………. Particulars Total Cost Cost Per Unit Direct Materials consumed XXX XXX Direct Wages XXX XXX Other Direct Expenses XXX XXXPrime Cost XXX XXXAdd: Factory or Works Overhead XXX XXXFactory Cost (Gross) XXX XXXAdd : opening work-in-progress XXX XXXLess : Closing work-in-process (XXX) (XXX)Factory Cost (net) XXX XXXAdd:Administrative overheads XXX XXXCost of production XXX XXXAdd : opening stock of finished goods XXX XXXLess : Closing stock of finished goods (XXX) (XXX)Cost of Goods Sold XXX XXXAdd : Selling Overheads XXX XXXCost of Sales XXX XXX
Example 2 Rs. Rs.Opening stock of raw 1,50,000 Factory rent, rates and 30,000materials powerClosing stock of raw 1,80,000 Depreciation of Plant and 7,000materials MachineryDirect wages 1,00,000 Repairs of Machinery 3,000Indirect wages 10,000 Advertising 12,000Opening W-I-P 55,000 Office rent & taxes 5,000Closing W-I-P 70,000 Salesmen salaries & 15,000 CommissionSales 4,00,000 Opening Stock of Finished 1,00,000 GoodsPurchase of Raw Materials 1,30,000 Closing Stock of finished 65,000 GoodsCarriage inwards 5,000 Sale of Scrap 2,000
Example 3• The following data relate to the manufacturing of a standard product during the month ended 31 March 2007:• Prepare a cost sheet and statement of profit Raw materials consumed Rs 15,000 Direct wages Rs 9,800 Machine hours worked 2,300 Hrs. Machine hour rate Re.0.50 Office overheads 10% of works cost Selling overheads Re. 0.10 per unit Units produced 19,030 Units sold 11,418 @ Rs. 2 each
Example 4• The following details are available from the books of Sea Products Ltd. for the year ending 31st Dec. 2007 Rs. Rs.Direct wages 6,00,000 Printing and stationery 12,000Purchase of materials 7,20,000 Accountants salary 12,000Indirect materials 36,000 Sales 18,00,000Office rent 8,640 Stock 1-1-2007 1,20,000 -Raw materialsWages of foremen and 48,000 -work-in-progress 28,800storekeepersOther indirect wages 6,000 -finished products (units) 6,000Cost of research and 30,000 Stock 31-12-2007 1,33,440experiments -Raw materialsOffice manager’s salary 72,000 -work-in-progress 96,000Employees’ State 6,000 -finished productsInsurance (units) 12,000Power, fuel and haulage 54,000 Income Tax 22,000Drawing expenses 36,000 Donation 5,000
Example 4(cont….)• The selling and distribution expenses are to be charged at Re. 1 per unit. During the year 2007 units produced were 96,000. prepare a cost sheet showing the different elements of cost and the profit.
ADVANTAGES OF COST SHEET• It discloses the total cost and the cost per unit of the units produced during the given period.• Cost control-It enables a manufacturer to keep a close watch and control over the cost of production.• Enable determination of variances and taking corrective measures - by providing a comparative study of the various elements of current costs with the past results and standard costs.• Guides in formulating production policy by estimating costs.• Helps in price fixation• Helps to minimise the cost of production during cut- throat competition.• Helps to submit reasonably accurate quotations against tenders for the supply of goods.
Cost Estimation•It is the process of determining in advance the costof a product, job, order or service.• In cost estimation, an allowance is made for anticipated fluctuations in the prices of elements of cost i.e. materials, labour and overheads.
Purpose of Cost Estimation1. Bidding for contracts and offering quotations.2. Preparation of budgets for budgetary control and cost control.3. Performance Evaluation4. Preparation of projected financial statements.
Tender Price• Tender is an offer inviting quotations to do a certain work.• Cost sheet is useful for determining tender/bid price by providing information elementwise and componentwise• In preparing tender price probable changes in the input prices should be taken into account.• Fixed costs should be ignored if the tender output can be met out of the existing plant capacity of the firm.
Example 5(Determination of Tender Price)The following cost data is of Stove Manufacturing Co. Ltdfor current year ending March 31. Rs. Opening Materials Inventory 70,000 Closing Materials Inventory 9,800 Purchase of Materials 1,05,000 Factory Wages 1,90,000 Factory expenses 35,000 Establishment Expenses 20,000 Opening finished stock Nil Closing finished stock 70,000 Sales 3,78,000
Example 5 (Cont….)The number of stoves manufactured during the year was8,000.The company wants to quote for the supply of 2,000stoves for the coming year.The stoves to be quoted are similar to the current year butcost of materials is expected to increase by 10% andfactory labour by 20%.Prepare a statement showing the price to be quoted so asto give the same percentage of profit on turnover as wasrealised during the current year assuming that other costswill be the same as in the previous year.