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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.
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 COST
Direct Material Factory Overhead Indirect Material Direct Labour Direct Expenses
Overhead
Selling & Distribution Overhead
Indirect Expenses
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 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. b. c. d. Cost of special designs, moulds, blue-prints Experimental/trial expenses Hire charges of special equipment Fees paid to architects, consultants and surveyors for specific job e. Royalties for land, mine, trademark
OVERHEADS
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, gatekeepers, 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.
Cont
XXX
XXX
Example 1
Rs. Direct materials Direct wages Indirect wages Direct Expenses Electric Power Depreciation of Office Building Depreciation of Plant and Machinery Directors fees Oil And Waste Lubricants Consumable stores Bad Debts Postage & Telegraph 80,000 40,000 10,000 12,000 1,000 1,000 2,000 2,000 200 300 1,000 2,000 500 Lighting-Factory -Office Carriage outward General selling Expenses Storeskeepers wages Office Printing & Stationery Travelling Expenses Telephone charges Rent Factory - office Managers Salary General factory Expenses Rs. 1,000 400 300 2,000 1,200 500 1,000 800 2,000 1,000 3,000 500
Treatment of stock
Stock may be of Raw material Work-in-Progress Finished Goods
XXX
XXX
Stock of Work-In-Process
Work-in-process(W-I-P) refers to units on which some work has been done but which are not yet complete. Adjustment of opening W-I-P and closing W-I-P is as follows: Prime Cost Add: Factory overhead Add: Opening W-I-P Less: Closing W-I-P Factory Cost Rs. XX XX XX XX XX
Example 2
Rs. Opening stock of raw materials 1,50,000 Factory rent, rates and power Rs. 30,000 7,000 3,000 12,000 5,000 15,000 1,00,000 65,000 2,000
Closing stock of raw materials 1,80,000 Depreciation of Plant and Machinery Direct wages Indirect wages Opening W-I-P Closing W-I-P Sales Purchase of Raw Materials Carriage inwards 1,00,000 Repairs of Machinery 10,000 Advertising 55,000 Office rent & taxes 70,000 Salesmen salaries & Commission 4,00,000 Opening Stock of Finished Goods 1,30,000 Closing Stock of finished Goods 5,000 Sale of Scrap
Example 3
The following data relate to the manufacturing of a standard product during the month ended 31 March 2007: Raw materials consumed Rs 15,000 Direct wages Rs 9,800 Machine hours worked Machine hour rate Office overheads Selling overheads Units produced Units sold 11,418 @ Rs. 2 each Prepare a cost sheet and statement of profit 2,300 Hrs. Re.0.50 10% of works cost Re. 0.10 per unit 19,030
The following details are available from the books of Sea Products Ltd. for the year ending 31st Dec. 2007 Rs. Rs. Direct wages Purchase of materials Indirect materials Office rent Wages of foremen and storekeepers Other indirect wages Cost of research and experiments Office managers salary Employees State Insurance Power, fuel and haulage 6,00,000 7,20,000 36,000 8,640 48,000 6,000 30,000 72,000 6,000 54,000 Printing and stationery Accountants salary Sales Stock 1-1-2007 -Raw materials -work-in-progress 12,000 12,000 18,00,000 1,20,000 28,800
Example 4
-finished products (units) 6,000 Stock 31-12-2007 1,33,440 -Raw materials -work-in-progress 96,000 -finished products (units) 12,000 Income Tax 22,000
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.
Cost Estimation
It is the process of determining in advance the cost of 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.
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 (Cont.)
The number of stoves manufactured during the year was 8,000. The company wants to quote for the supply of 2,000 stoves for the coming year. The stoves to be quoted are similar to the current year but cost of materials is expected to increase by 10% and factory labour by 20%. Prepare a statement showing the price to be quoted so as to give the same percentage of profit on turnover as was realised during the current year assuming that other costs will be the same as in the previous year.