Unit (output) costing finds the cost per unit when a business makes one identical product in a continuous process, such as bricks, cement, coal or paper. Costs are built up in a cost sheet: prime cost, plus factory overheads (works cost), plus office overheads (cost of production), plus selling overheads (cost of sales), plus profit (sales). Total cost divided by units gives the cost per unit.
Unit costing is calculations for a unit piece in manufacturing in organizations.
Following are the top Unit Costing Question Answers (Cost Accounting).
Unit Costing Problems and Solutions
1. Define unit cost?
Unit cost is the total cost divided by the number of units produced. The cost unit is the unit in which cost is expressed, such as per tonne, per brick or per kilogram.
2. What is the Unit Costing method?
It is a method of costing and is adopted where manufacturing determination of cost per unit is required.
3. Give two main assumptions of unit and output costing method?
The main assumption of the unit costing method are:
- Production involves only a single process or operation.
- The unit of output is identical.
4. Write down the Names of Methods of Unit costing?
These are the cost sheet, statement of cost, and production account.
5. What is Cost Sheet?
It is a schedule that provides information regarding the quantity of production total cost of production, the total cost of a product, and cost per unit.
6. What is the production account?
The production account reveals the cost of production in an analytical manner according to the double entry system.
7. State the name of four industries where unit costing is applied?
Unit costing methods are used in the Brick industry, Coal industry, Paper industry, Tea industry, Breweries industry, and Cement industry.
8. How is scrap treated in unit costing?
Scrap is a residual portion of the material that remains at the end of the manufacturing process and cannot be further processed its sale value can be deducted from the cost of material or overhead.
9. What is the tender price?
The tender price is an estimated selling price ascertained and informed to the probable buyer prior to procuring the production order.
10. What is the cost sheet? How does it differ from a production account?
It is a schedule that provides information regarding the quantity of production and total cost of a product and the cost per unit production account reveals the cost of production in a manner according to the double entry system.
11. What is the difference between the production cost of goods sold and the cost of production?
Cost of production = works cost + office and administration overheads. Cost of goods sold = cost of production + opening stock of finished goods − closing stock of finished goods. So cost of production covers everything produced in the period, while cost of goods sold covers only what was actually sold.
12. What Are the Objects of the unit costing method?
The objects of unit costing are:
- To ascertain the total cost and cost per unit
- Analyze expenses for unit cost,
- To compare costs between periods.
- Find out the proportion of expenses in respect of each element of cost,
- To provide the basis for the determination of the selling price.
- To determine the tender price.
13. What is the Procedure to Prepare a production Account?
Production account is based upon a double entry system cost of production and profit or loss can be ascertained and is prepared in two parts.
The First part of the debit side of the production account exhibit production cost under different heads.
In the Second part opening and closing stock of work-in-progress is adjusted in of debit and credit side of the account opening stock of finished goods is shown on the debit side while closing stock is shown on the credit side. The amount of sales is recorded on the credit side and the difference on both sides is ascertained.
If the total of the credit side is more than the debit side it is profit otherwise it is the loss.
Worked Example: Preparing a Cost Sheet
A brick kiln produces 10,000 units in a month. Figures in rupees:
| Item | Amount (₹) | Per unit (₹) |
|---|---|---|
| Direct materials | 50,000 | 5.00 |
| Direct wages | 30,000 | 3.00 |
| Direct expenses | 5,000 | 0.50 |
| Prime cost | 85,000 | 8.50 |
| Factory overheads | 15,000 | 1.50 |
| Works (factory) cost | 1,00,000 | 10.00 |
| Office and administration overheads | 10,000 | 1.00 |
| Cost of production | 1,10,000 | 11.00 |
| Selling and distribution overheads | 5,500 | 0.55 |
| Cost of sales | 1,15,500 | 11.55 |
| Profit (20% on cost of sales) | 23,100 | 2.31 |
| Sales | 1,38,600 | 13.86 |
This example assumes no opening or closing stock, so all 10,000 units are sold. If there were stock, you would adjust it between cost of production and cost of sales, as explained in question 11. The same cost sheet is the basis for quoting a tender price for a future order.
