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Unit Costing and Job Costing
Unit Costing and Job Costing
Unit Costing
This is a method of costing which is commonly used in industries that produce identical products. In
addition, this is used in uniform manufacturing processes and situations when cost units have identical
costs. Examples of companies that employ unit costing include industries that manufacture
homogeneous products like sugar, bricks, cement works, collieries, and breweries. The following are the
features of unit costing:
Average unit cost. Unit costing computes the average unit cost by dividing the total costs by the
number of units produced in a specified period.
Single product. Unit costing involves a single product only or a number of grades of the product.
Applicability. Unit costing is applied to industries where the manufacturing process is not
continuous.
EXAMPLE: The management of Pizza Restaurant desires to determine the unit cost associated in their
10,000 sales of pepperoni pizzas. The following variable expenses per pizza are available:
Flour P0.50
Yeast 0.05
Water 0.01
Cheese 3.00
Pepperoni 2.00
Total variable cost per unit P5.56 per pizza
SOLUTION:
𝑇𝑜𝑡𝑎𝑙 𝐹𝑈𝑈𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝑈𝑛𝑈𝑈𝑡 𝐶𝑜𝑠𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑉𝑎𝑟𝑈𝑈𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑈𝑈𝑡 +
𝑇𝑜𝑡𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑜𝑜 𝑆𝑎𝑙𝑒𝑠
𝑃5,650
= 𝑃5.56 +
10,000
= 𝑃5.56 + 𝑃0.57
= 𝑃𝑷𝑷. 𝟏𝟏𝟏𝟏
KEY POINTS: The unit cost provides a dynamic overview of the relationships among revenues, costs, and
profits. It helps business owners determine if their business is earning a profit. Also, it helps
them price their products by considering the costs associated in the product per unit.
1,250,000
= 200,000
= 𝑷𝑷. 𝟐𝟐𝟐𝟐 𝑝𝑒𝑟 𝑑𝒅𝒅𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 ℎ𝑜𝑢𝑟
EXAMPLE 2: ABC Premier Cabinets completes job #322 on July 7. The job used 45 direct labor hours and
30 machine hours. The job consumed P1,800 worth of materials. The average direct labor
rate is P18.00 per hour and the company uses the predetermined overhead rate calculated
in Example 1. Calculate the total cost of job #322.
FORMULA: The three (3) components of job cost are direct materials, direct labor, and applied overhead.
𝑇𝑜𝑡𝑎𝑙 𝐽𝑜𝑏 𝐶𝑜𝑠𝑡 = 𝐷𝑈𝑈𝑟𝑒𝑐𝑡 𝑀𝑎𝑡𝑒𝑟𝑈𝑈𝑎𝑙𝑠 + 𝐷𝑈𝑈𝑟𝑒𝑐𝑡 𝐿𝑎𝑏𝑜𝑟 + 𝐴𝑝𝑝𝑙𝑈𝑈𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑
PROCEDURE:
1. Calculate the direct labor. Based on the illustration, the rate of average direct labor is P18.00 per
direct labor hour and the activity or cost driver is 45 labor hours.
References
Accounting in Focus. (n.d.). Job costing and overhead allocation. Retrieved on October 03, 2018, from
https://accountinginfocus.com/managerial-accounting-2/overhead-allocation/job-costing-and-
overhead-allocation
InvestingAnswers. (n.d.) Cost per unit. Retrieved on October 03, 2018, from
https://investinganswers.com/financial-dictionary/financial-statement-analysis/cost-unit-5333
Lalitha, R. & Rajasekaran, V. (2010). Costing accounting. India: Pearson.
Surbhi, S. (2017). Difference between job costing and batch costing. Retrieved on October 25, 2018, from
https://keydifferences.com/difference-between-job-and-batch-costing.html