This PPT describes the Unit Cost method in Cost Accounting.

1. Unit
Costing

2. Unit Cost
Cost incurred by a company to
produce, store and sell one unit of a
particular product.

3. Objectives
• to provide the classification of costs
in a summarised form
• to prepare estimates of costs for
future use and
• to facilitate a comparative study of
costs with previous cost sheets to
know the cost trends.

4. COST SHEET
A document which provide for the
assembly of the detailed cost of a
cost centre or cost unit.
Cost sheet is a statement
presenting the items entering cost
of products or services.
It shows the total cost
components by stages and cost
per unit of output during a period.

5. Proforma of Cost Sheet
Particulars Total Cost (Rs.) Cost per unit (Rs.)
Direct Materials
Direct Labour
Direct Expenses
Prime cost
Works Overhead
Works Cost/Factory Cost
Office & Adm. Overheads
Cost of Production
Selling & Dist. Overheads
Total Cost or Cost of Sales
Profit or Loss (Balancing Figure)
Sales

6. Prime Cost
It is the combination of a manufactured product's
costs of direct materials and direct labor.
It consists of costs of direct material, direct labour,
and direct expenses.
It is also known as basic, first or flat cost.

7. Factory Cost
It comprises prime cost and, in addition,
works or factory overheads which
include costs of indirect material,
indirect labour and indirect factory
expenses.
This cost is also known as works cost,
production or manufacturing cost

8. Office Cost
• It comprises of
factory cost and
office and
administrative
overheads.
• This is also termed as
total cost of
production.

9. Selling & Distribution
Cost
The price of the entire
process, from packing the
product to making it
suitable for shipping to
making the reconditioned
returned empty package
usable again.

10. Total Cost
• It comprises of cost
of production and
selling and
distribution
overheads.
• It is also termed as
cost of sales.

11. Computation
of Profit
Profit may be calculated
either as a percentage of cost
or selling price.

12. Items Excluded from Cost Sheet
• Expenses on acquisition of capital • Income Tax
• Dividends on capital • Charities
• Abnormal wastage of materials • Donations, staff pension fund
• Discount on debentures • Transfer to reserves
• Underwriting commission • Capital losses
• Preliminary expenses • Rent, interest & commission received
• Cost of abnormal idle time • Compensations
• Fines and penalties
• Goodwill

13. Example - 1
• Number of Jeans manufactured
during the month 1,000
• Direct materials consumed 20,000
• Direct labour 8,000
• Indirect labour (in factory) 2,500
• Supervision costs (in factory) 1,000
• Factory premises rent 1,600
• Factory lighting 600
• Oil for machines 100
• Depreciation of machines 500
• Office overheads 8,000
• Office salaries 2,000
• Misc. office expenses 1,000
• Selling and distribution
overheads 6,000
Prepare a cost sheet of the following data relating to the manufacture of Jeans:
A profit margin of 20% on the total cost of goods is expected on the sale of Jeans.

14. Example – 2
• Direct material 57,000
• Direct wages 28,500
• Factory rent and rates 2,500
• Office rent and rates 500
• Plant repairs and maintenance 1,000
• Plant depreciation 1,250
• Factory heating and lighting 400
• Factory manager’s salary 2,000
• Office salaries 1,600
• Director’s remuneration 1,500
• Telephone and postage 200
• Printing and stationery 100
• Legal charges 150
• Advertisement 1.500
• Salesmen’s salaries 2,500
• Showroom rent 500
• Sales 1,16,000
From the following information for the month of January, prepare a Cost Sheet
to show the following components : (a) Prime Cost, (b) Factory Cost, (c) Cost of
Production, (d) Total Cost.

15. Treatment of Certain items in
the Cost Sheet
The term ‘Stock’ includes
three items: raw materials,
work in progress and
finished goods

16. Cost of Materials consumed
Opening stock of raw material
Add Purchases
Add Expenses involved in the purchases of raw material
Less Closing stock of raw materials
Cost of Materials consumed

17. Example – 4
Calculate materials consumed from the following information.
• Opening stock of raw materials 130,000
• Purchases 1,80,000
• Closing stock of raw materials 1,20,000

18. Stock of Work-in-Progress
Prime Cost
Add: Factory overhead
Add: Opening stock of work-in-progress
Less: Closing stock of work-in-progress
Works Cost or Factory Cost

19. Example – 5
From the following information, calculate Factory Cost.
• Direct materials consumed 1,93,000
• Direct wages 1,22,000
• Factory overhead 1,24,000
• Closing stock of work-in-progress 18,000
• Direct expenses 15,000
• Opening stock of work-in-progress 1,14,000

20. Stock of Finished Goods
Prime cost
Add: Factory OH
Factory cost
Add: Administration OH
Cost of Production
Add: Opening stock of finished goods
Less: Closing stock of finished goods
Cost of Goods Sold

21. Example – 6
Calculate Cost of Goods Sold from the following information.
• Factory cost 1,50,000
• Administration overhead 10,000
• Cost of Production 1,60,000
• Opening stock of finished goods 30,000
• Closing stock of finished goods 22,000

22. Cost Sheet
Opening stock of raw material
Add Purchases
Add Expenses involved in the purchases of raw-material
Less Closing stock of raw materials
Cost of Materials Consumed
Direct Labour
Direct Expenses
Prime cost
Add: Factory OH
Add: Opening stock of work-in-progress
Less: Closing stock of work-in-progress
Works Cost or Factory Cost
Add: Administration OH
Cost of Production
Add: Opening stock of finished goods
Less: Closing stock of finished goods
Cost of Goods Sold
Add: Selling and Distribution OH
Total Cost
Add: Profit
Sales

23. Example – 7
• Stock of raw materials on 1st Sept., 2022
75,000
• Stock of raw materials on 30th Sept., 2022
91,500
• Direct wages 52,500
• Indirect wages 2,750
• Sales 2,00,000
• Work-in-progress on 1st Sept., 2022 28,000
• Work-in-progress on 30th Sept., 2022 35,000
• Purchases of raw materials 66,000
• Factory rent, rates and power 15,000
The ABC Ltd. supplies you the following information and requires you to prepare a cost sheet.
• Depreciation of plant and machinery 3,500
• Expenses on purchases 1,500
• Carriage outward 2,500
• Advertising 3,500
• Office rent and taxes 2,500
• Travellers’ wages and commission 6,500
• Stock of finished goods on 1st Sept., 2022
54,000
• Stock of finished goods on 30th Sept., 2022
31,000

24. Treatment of Scrap
• Scrap can take the shape of metal or
wood cuttings, trims, borings, etc. in
some manufacturing sectors.
• Scrap can typically be sold for a certain
price.
• While creating the cost sheet, the
realisable value of scrap is subtracted
from factory overheads or factory costs.

25. Format
Prime Cost
Add: Factory OH
Less: Scrap
Factory or Works Cost

26. Example – 8
• Raw materials purchased 32,250
• Carriage on purchases
850
• Direct wages
18,450
• Factory overhead 2,750
• Selling overhead 2,450
From the following information prepare a cost sheet to show:
(a) Prime cost; (b) Works cost; (c) Cost of production; (d) Cost of sales; and (e) Profit.
• Office overhead 1,850
• Sales 75,000
• Sale of factory scrap
250
• Opening stock of finished goods
9,750
• Closing stock of finished goods
11,100

27. Example – 9
The following extracts of costing information relate to commodity X for the year ending
31-12-2022.
• Purchases of raw materials 6,000
• Direct wages 5,000
• Rent, rates and insurance 2,000
• Carriage inwards 100
• Stock (1-1-2022) : Raw materials 1,000
• Finished products — 200 tonnes 800
• Stock (31-12-2022) : Raw materials 1,100
• Finished products — 400 tonnes
• Cost of factory supervision 400
• Sale of finished products 15,000
Advertising and selling cost is 40 paise per tonne sold. 3,000 tonnes of the commodity were
sold during the year. Prepare a Cost Sheet.

28. Tenders and Quotations
Preparing tenders or quotation
manufacturers or contractors
have to look into the figures
pertaining to the previous year
as shown in the cost sheet for
that period.

29. Tender
The process whereby
governments invite bids for large
projects that must be submitted
within a finite deadline.

30. Quotation
A formal statement of promise (submitted usually in response
to a request for quotation) by potential supplier to supply the
goods or services required by a buyer, at specified prices, and
within a specified period.

31. Difference
between
tender and
quotations
Tender in business means a type
of quotation offering lowest
prices for supply of some goods
or service or job works.
Normally, in tender you have to
deposit some amount (refundable
or non-refundable), whereas it is
not compulsory in quotation.

32. Cost control
Cost control ensures that
spending remains within set
parameters.
Managers and executives are held
accountable for controlling
operational costs in this strategy.
If there is a deviation from these
defined norms, it is constantly
recognised and reported.

33. Pre-
requisites
Establishment of power and responsibility, i.e., each cost
centre must be assigned to a responsible manager's name.
There should be clear objectives.
Individuals should be encouraged to meet goals through
monetary or non-monetary incentives.
The results should be reported in a timely and efficient
manner.
Following a comparison of actual performance to budgets,
suitable recommendations and measures should be taken.
Proper follow-up is required to guarantee effective
execution of recommendations.

34. Steps
Pre-defined standards are
determined.
Actual performance evaluation
Actual performance is compared to
benchmarks
Analysis of variance and Action

35. Cost reduction
A management technique in which the cost of an
object is constantly regarded to have potential for
further reduction is known as cost reduction.
Because there is no such thing as the lowest cost,
every cost-cutting option is considered.

36. Cost reduction
The unit cost of products produced, or services supplied is reduced.
Cost reduction is an ongoing process.
The quality of goods or the utility of services is not affected, if
anything, it is improved.

37. Check-points
• Whether personnel and material waste are minimised to a
minimum level.
• Is there any way to cut down on idle capacity?
• Whether there is any time and money wasted as a result of
delays in moving resources from one production activity to
another.
• Whether stores and maintenance services are efficient.

38. Actions
• Analyze the value chain
• Consistent research
• Other current methods

39. Objective of cost control and reduction
• The purpose of cost control is to keep costs
within predetermined parameters.
• Cost reduction, on the other hand, is focused
with lowering costs.
• It puts all standards to the test and attempts
to improve them on a regular basis.

40. Differences
Cost control Cost reduction
Meaning
To control costs, actual costs
are compared to budgeted
values.
Obtaining a genuine and long-term
reduction in the unit cost of items
produced.
Aim
Costs must be kept within
defined limits.
To make ongoing efforts to cut
costs
Approach
Variance analysis and
standard costing
Improvisation in the production of
a product or the provision of a
service under existing conditions
Emphasis The past and the present Present and future
Nature Preventive function Corrective function
Process
Ends when targets are
achieved
Continuous process

41. References
• http://www.slideshare.net/RohitMahindrakar2/cover-letter-
quotations-tender-etender
• https://finlawportal.com/the-difference-between-cost-control-
and-cost-reduction/