BBM 201 Unit 2, Lesson 5
LESSON 5 SINGLE/OUTPUT/UNIT COSTING
TABLE OF CONTENTS:
5.0 OBJECTIVES
5.1 DEFINITIONS OF UNIT OR OUTPUT COSTING
5.1.1 OBJECTIVES OF UNIT OR OUTPUT COSTING
5.1.2 ELEMENTS OF COST UNDER UNIT OR OUTPUT COSTING
5.1.3 DETERMINATION OF COSTING UNDER OUTPUT COSTING METHOD
5.2 EXPLANATION OF VARIOUS TYPES OF COST APPEARING IN
COST SHEET OR STATEMENT OF COST
5.3 TREATMENT OF ITEMS OF STOCK IN COST SHEET
5.3.1 NUMERICAL ILLUSTRATIONS
5.4 TENDER PRICE
5.4.1 DETERMINATION OF TENDER PRICE
1
,BBM 201 Unit 2, Lesson 5
5. SINGLE/OUTPUT/UNIT COSTING
This lesson deals with preparation of cost sheet and statement of cost. Cost sheet is
used to ascertain the total cost and per unit of each item of expense and statement
of cost is used to determine the total cost and cost per unit of the products
manufactured. Output costing method is applied in industries where goods are
produced on mass scale and goods are uniform.
5.0 Objectives
To understand the concept of output costing.
To know the meaning of cost sheet and statement of cost.
Preparation of cost sheet and statement of cost.
Single/ Output costing method is a costing procedure, which is applied in those
concerns which generally produce a single article or product or two or more grades
of one product on mass scale by a common continuous process of manufacturing.
The cost units are similar and identical. The products whose cost is to be
ascertained are homogenous and are similar to each other.
5.1 Definitions of Unit or Output Costing
Herold J. Wheldon—"Production cost accounting or unit cost accounting is such a
method of cost ascertainment which is based on production unit. It is applicable
where the production work is done continuously and the units are of same types or
manufactured identical."
Walter W. Bigg-—"Unit costing method is a method of costing applied to ascertain
the cost unit or production where standard and identical products are manufactured."
J. R. Batliboi— “Single or output cost system is used in business where a standard
product is turned out and it is desired to find out the cost of a basic unit of
production.
The above definitions brings out the fact that single or output method of
costing is used in those industries, where following characteristics are found:
i) Production is uniform or homogeneous and a continuous affair;
ii) The units of production is identical or similar;
iii) The cost units are physical and natural;
iv) Per unit cost has to be determined, for example per ton, per metre, per kg.,
etc.
2
, BBM 201 Unit 2, Lesson 5
Generally these characteristics are found in following industries—Coal mines, Sugar
mills, Cloth mills, Flour mills, Cement factory, Brick kilns, breweries etc.
5.1.1 Objectives of Unit or Output Costing
The following are the main objectives of output costing method:
i) To determine the total cost of production within specific period.
ii) To classify cost under related categories
iii) To have detailed analysis in order to determine per unit cost.
iv) To determine the effect of each element of cost on total cost and to exercise
control over cost.
v) To determine tender price, estimated price or selling price of the product.
5.1.2 Elements of Cost Under Unit or Output Costing
The various elements of cost under output costing for determination of cost of the
products are:
Materials : The quantity and value of material consumed in manufacturing of the
product is to be determined.
Labour : Direct and indirect labour cost has to be determined from the wage
analysis sheet.
Direct Expenses: Other than material and labour various other expenses are also
incurred on production which are directly related to production. These expenses are
termed as direct expenses.
Overheads: The overheads are debited to production for the period for which the
cost is being determined. These overheads expenses are taken from the financial
records. There are certain expenses which cannot be determined before the end of
the accounting period. For those expenses, an estimate is made in the beginning of
the year and are apportioned on appropriate basis. These overheads are the total of
indirect material, indirect labour and indirect expense. In output costing, for in depth
analysis of overheads, these are classified as Factory Overheads, Office or
Administrative Overheads and Selling and Distribution Overheads.
Self-check Questions
1. What is output costing method? In which industries is it applied?
2. What are the objectives of application of Output costing method?
3
LESSON 5 SINGLE/OUTPUT/UNIT COSTING
TABLE OF CONTENTS:
5.0 OBJECTIVES
5.1 DEFINITIONS OF UNIT OR OUTPUT COSTING
5.1.1 OBJECTIVES OF UNIT OR OUTPUT COSTING
5.1.2 ELEMENTS OF COST UNDER UNIT OR OUTPUT COSTING
5.1.3 DETERMINATION OF COSTING UNDER OUTPUT COSTING METHOD
5.2 EXPLANATION OF VARIOUS TYPES OF COST APPEARING IN
COST SHEET OR STATEMENT OF COST
5.3 TREATMENT OF ITEMS OF STOCK IN COST SHEET
5.3.1 NUMERICAL ILLUSTRATIONS
5.4 TENDER PRICE
5.4.1 DETERMINATION OF TENDER PRICE
1
,BBM 201 Unit 2, Lesson 5
5. SINGLE/OUTPUT/UNIT COSTING
This lesson deals with preparation of cost sheet and statement of cost. Cost sheet is
used to ascertain the total cost and per unit of each item of expense and statement
of cost is used to determine the total cost and cost per unit of the products
manufactured. Output costing method is applied in industries where goods are
produced on mass scale and goods are uniform.
5.0 Objectives
To understand the concept of output costing.
To know the meaning of cost sheet and statement of cost.
Preparation of cost sheet and statement of cost.
Single/ Output costing method is a costing procedure, which is applied in those
concerns which generally produce a single article or product or two or more grades
of one product on mass scale by a common continuous process of manufacturing.
The cost units are similar and identical. The products whose cost is to be
ascertained are homogenous and are similar to each other.
5.1 Definitions of Unit or Output Costing
Herold J. Wheldon—"Production cost accounting or unit cost accounting is such a
method of cost ascertainment which is based on production unit. It is applicable
where the production work is done continuously and the units are of same types or
manufactured identical."
Walter W. Bigg-—"Unit costing method is a method of costing applied to ascertain
the cost unit or production where standard and identical products are manufactured."
J. R. Batliboi— “Single or output cost system is used in business where a standard
product is turned out and it is desired to find out the cost of a basic unit of
production.
The above definitions brings out the fact that single or output method of
costing is used in those industries, where following characteristics are found:
i) Production is uniform or homogeneous and a continuous affair;
ii) The units of production is identical or similar;
iii) The cost units are physical and natural;
iv) Per unit cost has to be determined, for example per ton, per metre, per kg.,
etc.
2
, BBM 201 Unit 2, Lesson 5
Generally these characteristics are found in following industries—Coal mines, Sugar
mills, Cloth mills, Flour mills, Cement factory, Brick kilns, breweries etc.
5.1.1 Objectives of Unit or Output Costing
The following are the main objectives of output costing method:
i) To determine the total cost of production within specific period.
ii) To classify cost under related categories
iii) To have detailed analysis in order to determine per unit cost.
iv) To determine the effect of each element of cost on total cost and to exercise
control over cost.
v) To determine tender price, estimated price or selling price of the product.
5.1.2 Elements of Cost Under Unit or Output Costing
The various elements of cost under output costing for determination of cost of the
products are:
Materials : The quantity and value of material consumed in manufacturing of the
product is to be determined.
Labour : Direct and indirect labour cost has to be determined from the wage
analysis sheet.
Direct Expenses: Other than material and labour various other expenses are also
incurred on production which are directly related to production. These expenses are
termed as direct expenses.
Overheads: The overheads are debited to production for the period for which the
cost is being determined. These overheads expenses are taken from the financial
records. There are certain expenses which cannot be determined before the end of
the accounting period. For those expenses, an estimate is made in the beginning of
the year and are apportioned on appropriate basis. These overheads are the total of
indirect material, indirect labour and indirect expense. In output costing, for in depth
analysis of overheads, these are classified as Factory Overheads, Office or
Administrative Overheads and Selling and Distribution Overheads.
Self-check Questions
1. What is output costing method? In which industries is it applied?
2. What are the objectives of application of Output costing method?
3
