Methods of costing

Types
Single or output costing Job costing Process costing Contract costing Operating costing

Single or output costing

When an industrial enterprises produce only one product, the task of ascertaining the CPU of out is comparatively easy and such organizations follow Single or output costing. CPU=Total costs/Number of units of output

Stages in a cost sheet

Materials consumed Prime cost Factory on cost Factory cost General on-cost/Cost of production Total cost/Cost of sales Net profit

Material Cost
Purchase Process of Raw materials 1. Centralized purchase policy 2. Decentralized purchase policy

Steps in Purchase Procedure

Bill of material and Purchase requisition Selection of suppliers-Schedule of quotations Purchase order and follow up Inspection of materials-Goods received note Verification of inward invoices and passing for payment-Material debit note and invoice

Material control techniques

STOCK LEVELS Maximum Level Minimum Level Average Level Re-order Level Danger Level

Problem
From the following particulars, calculate stock levels. 1. Minimum consumption 100 units per day 2. Maximum consumption 150 units per day 3. Normal consumption 120 units per day 4. Re-order quantity 1500 units 5. Re-order period 10-15 days 6. Normal re-order period 12 days

Economic Order Quantity

Ordering costs Carrying costs

Problem
The inventory carrying cost and the ordering cost for a company having been computed to be 15% and Rs 24 per order respectively. If the annual requirement of an item having unit price of Rs 10 is 1200 units, calculate the quantity to be bought to optimise total cost.

Issue of Materials
LIFO FIFI Weighted average method Single price method Market price method Base price method

Other techniques
Inventory turnover ABC method Stock verification-periodic stock verification and continuous stock verification