{"id":3373,"date":"2020-02-17T07:06:06","date_gmt":"2020-02-17T07:06:06","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3373"},"modified":"2020-02-17T07:06:06","modified_gmt":"2020-02-17T07:06:06","slug":"unit-costing","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/unit-costing\/","title":{"rendered":"UNIT COSTING"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/unit-costing\/#UNIT_COSTING\" title=\"UNIT COSTING\">UNIT COSTING<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/unit-costing\/#Unit_costing_refers_to_the_costing_procedure_under_which_costs_are_accumulated_and_analyzed_under_different_elements_of_cost_and_then_cost_per_unit_is_ascertained_by_dividing_the_total_cost_by_number_of_units_produced\" title=\"Unit costing refers to the costing procedure, under which costs are accumulated and analyzed under different elements of cost and then cost per unit is ascertained by dividing the total cost by number of units produced. \">Unit costing refers to the costing procedure, under which costs are accumulated and analyzed under different elements of cost and then cost per unit is ascertained by dividing the total cost by number of units produced. <\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/unit-costing\/#FEATURES_OF_UNIT_COSTING\" title=\"FEATURES OF UNIT COSTING\">FEATURES OF UNIT COSTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/unit-costing\/#OBJECTIVES_OF_UNIT_COSTING\" title=\"OBJECTIVES\nOF UNIT COSTING\">OBJECTIVES\nOF UNIT COSTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/unit-costing\/#ACCOUNTING_FOR_UNIT_COSTING\" title=\"ACCOUNTING\nFOR UNIT COSTING\">ACCOUNTING\nFOR UNIT COSTING<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/unit-costing\/#COST_SHEET\" title=\"COST SHEET\">COST SHEET<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/unit-costing\/#PRODUCTION_ACCOUNT\" title=\"PRODUCTION ACCOUNT\">PRODUCTION ACCOUNT<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/unit-costing\/#UNIT_OF_MEASUREMENT\" title=\"UNIT OF MEASUREMENT \">UNIT OF MEASUREMENT <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/unit-costing\/#ASCERTAINMENT_OF_COST_PER_UNIT\" title=\"ASCERTAINMENT OF COST PER UNIT \">ASCERTAINMENT OF COST PER UNIT <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/commerceiets.com\/unit-costing\/#LIMITATIONS_OF_UNIT_COSTING\" title=\"LIMITATIONS OF UNIT COSTING\">LIMITATIONS OF UNIT COSTING<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\" id=\"unit-costing\"><span class=\"ez-toc-section\" id=\"UNIT_COSTING\"><\/span><strong>UNIT COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"unit-costing-refers-to-the-costing-procedure-under-which-costs-are-accumulated-and-analyzed-under-different-elements-of-cost-and-then-cost-per-unit-is-ascertained-by-dividing-the-total-cost-by-number-of-units-produced\"><span class=\"ez-toc-section\" id=\"Unit_costing_refers_to_the_costing_procedure_under_which_costs_are_accumulated_and_analyzed_under_different_elements_of_cost_and_then_cost_per_unit_is_ascertained_by_dividing_the_total_cost_by_number_of_units_produced\"><\/span>Unit costing refers to the costing procedure, under which<a aria-label=\" costs  (opens in a new tab)\" href=\"https:\/\/commerceiets.com\/elements-of-cost\/\" target=\"_blank\" rel=\"noreferrer noopener\"> costs <\/a>are accumulated and analyzed under different elements of cost and then cost per unit is ascertained by dividing the total cost by number of units produced. <span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>It is ideally used in case of concerns producing a single article on large scale by continuous manufacture. The units of output are identical. The products are homogenous. Concern using single or output costing produces basically one product or two or more grades of one product. <\/p>\n\n\n\n<p>It is not necessary to maintain separate cost accounts under\nthis system. as all the information required can be obtained only by organizing\nand analyzing the financial accounts. On dividing the total expenditure incurred\nby the number of units produced, the cost per unit is ascertained. <\/p>\n\n\n\n<p><strong>ACCORDING TO J.R\nBATLIBOI<\/strong><\/p>\n\n\n\n<p>\u201cSingle or output cost system is used in business where a\nstandard product is turned out and it is desired to find out the cost of a\nbasic unit of production.\u201d<\/p>\n\n\n\n<p><strong>ACCORDING TO WALTER W. BIGG, <\/strong><\/p>\n\n\n\n<p>\u201cUnit Costing Method is a method of costing applied to ascertain\nthe cost per unit of production where standard and identical products are\nmanufactured.\u201d<\/p>\n\n\n\n<p><strong>ACCORDING TO HAROLD J. WHELDON, <\/strong><\/p>\n\n\n\n<p>\u201cProduction Cost Accounting or Unit Cost Accounting is such a\nmethod of cost ascertainment which is based on production unit. It is\napplicable where the production work is done continuously and the units are of\nsame types or manufactured identical.\u201d<\/p>\n\n\n\n<p><strong>THE INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS, LONDON, <\/strong><\/p>\n\n\n\n<p>\u201cOutput costing is the basic costing method applicable where goods\nor services result from a series of continuous or repetitive operations or\nprocesses to which costs are charged before being averaged over the units\nproduced during the period.\u201d<\/p>\n\n\n\n<p>This system of costing is suitable for breweries,\ncollieries, cement works, steel, brick making, floor mills etc. &nbsp;In all these cases the unit cost of the\narticle produced requires to be ascertained.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"features-of-unit-costing\"><span class=\"ez-toc-section\" id=\"FEATURES_OF_UNIT_COSTING\"><\/span><strong>FEATURES OF UNIT COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>SUITABILITY OF UNIT COSTING:<\/strong><\/p>\n\n\n\n<p>Output costing is the method of costing adopted in concerns where\nthere is a production of single product or a few grades of the same product\ndiffering only in size, shape or quality by continuous process of manufacture.\nThe units of production or output are identical and the costs of units are\nphysical and natural.<\/p>\n\n\n\n<p><strong>ASCERTAINMENT OF COST PER UNIT:<\/strong><\/p>\n\n\n\n<p>Under this method, the cost per unit of output, say, per ton, per\nbarrel, per kilogram, per metre, per quintal, per bag, etc. is ascertained. The\ncost per unit of output is ascertained by dividing the total cost incurred on a\nproduct during a given period of time by output produced during the period. Where the products manufactured are of different grades, first,\nthe costs of products are ascertained grade-wise, and then the total cost of\neach grade of the product is divided by the number of units of that grade so as\nto ascertain the cost per unit of each grade of the product.<\/p>\n\n\n\n<p><strong>EQUALITY OF COST:<\/strong><\/p>\n\n\n\n<p>Equality of cost is an important feature of this method. That is,\nunder this method, cost units, which are identical, will have identical cost.<\/p>\n\n\n\n<p><strong>COST ASCERTAINMENT AT END OF\nTHE YEAR:<\/strong><\/p>\n\n\n\n<p>Under this method, the cost of product is ascertained at the end\nof the accounting period.<\/p>\n\n\n\n<p><strong>ACCOUNTS\nPREPARED:<\/strong><\/p>\n\n\n\n<p>Under this method, the cost information relating to a product may\nbe presented in the form of either cost sheet or production account.<\/p>\n\n\n\n<p><strong>SIMPLE METHOD OF COSTING:<\/strong><\/p>\n\n\n\n<p>This method is the simplest method of all the methods of costing;\nin the sense that the cost collection and the cost ascertainment are quite\nsimple.<\/p>\n\n\n\n<p><strong>HELPFUL TO MANAGEMENT:<\/strong><\/p>\n\n\n\n<p>The cost per unit of output, determined under single or unit costing\nenables the management to make real comparison between different periods and\nbetween different firms within the same industry, as the unit of output is a\ncommon factor between different periods and between different firms within the\nsame industry.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"objectives-of-unit-costing\"><span class=\"ez-toc-section\" id=\"OBJECTIVES_OF_UNIT_COSTING\"><\/span><strong>OBJECTIVES\nOF UNIT COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Unit costing has the certain objectives which are as follows:<\/p>\n\n\n\n<p><strong>TO FIND OUT TOTAL COST AND COST PER UNIT<\/strong><\/p>\n\n\n\n<p>Main object of this method is\nto determine total cost and cost per unit of goods produced in a certain period\nof time. <\/p>\n\n\n\n<p><strong>ANALYSIS OF EXPENSES INCURRED ON COST UNIT<\/strong><\/p>\n\n\n\n<p>To analyse element-wise total\ncost and cost per unit of each element unit costing method is useful. Cost is\ndivided into four parts prime cost, works cost, cost of production and total\ncost. <\/p>\n\n\n\n<p><strong>COMPARATIVE STUDY<\/strong><\/p>\n\n\n\n<p>&nbsp;If we want information regarding any increase\nor decrease in any expense is possible through comparative analysis for the\nyear and years. Over expenses can be controlled under output costing method by\nproviding data in case of any increase. <\/p>\n\n\n\n<p><strong>TO FIND OUT PERCENTAGE OF EACH ELEMENT OF COST TO TOTAL COST<\/strong><\/p>\n\n\n\n<p>Under this method\nproportionately share of each element in total cost can be determined. This\nwill help in estimating cost of each element in future. Control can be\nexercised through this method on the elements having large amounts. <\/p>\n\n\n\n<p><strong>TO FIND OUT SELLING PRICE AND PROFIT<\/strong><\/p>\n\n\n\n<p>Selling price per unit\ncomputed after adding a certain percentage of profit in per unit, Profit or\nLoss can be ascertained by comparing total cost when Amount of sales has been\ngiven. <\/p>\n\n\n\n<p><strong>TO FIND OUT TENDER PRICE<\/strong><\/p>\n\n\n\n<p>Selling price of a commodity is to be informed to customer prior to its order or estimate for a work is to be given termed as \u201cTender price\u201d. This price is ascertained on the basis of previous year\u2019s costs.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"accounting-for-unit-costing\"><span class=\"ez-toc-section\" id=\"ACCOUNTING_FOR_UNIT_COSTING\"><\/span><strong>ACCOUNTING\nFOR UNIT COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The analysis of the cost by adopting the method of unit\ncosting is presented in the form of a statement known as cost sheet or an\naccount i.e. Production account.<\/p>\n\n\n\n<h4 class=\"has-green-color has-text-color wp-block-heading\" id=\"cost-sheet\"><span class=\"ez-toc-section\" id=\"COST_SHEET\"><\/span><strong>COST SHEET<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Cost sheet is a device used to determine and present the cost under unit costing. It is a statement of costs incurred at each level of manufacturing a product or service. In a Cost sheet all the elements of cost is taken into consideration. It includes Prime cost, Factory\/manufacturing cost, cost of production, cost of sale, Profit\/loss etc.<\/p>\n\n\n\n<p><strong>ACCORDING TO C.I.M.A,\nLONDON<\/strong><\/p>\n\n\n\n<p>\u201cCost sheet is a cost schedule or document which provides\nfor the assembly of the estimated detailed cost in respect of a cost center or\ncost unit\u201d. <\/p>\n\n\n\n<p><strong>ACCORDING TO WHELDON<\/strong><\/p>\n\n\n\n<p>\u201cCost sheets are prepared for the use of management and\nconsequently, they must include all the essential details which will assist the\nmanager in checking the efficiency of production\u201d<\/p>\n\n\n\n<p>Items excluded from Cost Sheet:<\/p>\n\n\n\n<p>1. Pure financial expenses like interest on capital,\ninterest on loan, discount on debentures, loss on sale of fixed asset provision\nfor bad debts and doubtful debts, writing off goodwill, copyright, preliminary\nexpenses etc.<\/p>\n\n\n\n<p>2. Pure financial incomes like interest received, profit on\nsale of investment, dividend received, rent received, commission received,\ndiscount received etc.<\/p>\n\n\n\n<p>In addition to the above, no appropriation items will\ninclude in cost sheet.<\/p>\n\n\n\n<p class=\"has-text-align-center\"><strong>Form of a Cost Sheet: Cost sheet for the period ending<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  <strong>PARTICULARS<\/strong>\n  <\/td><td>\n  <strong>AMOUNT<\/strong>\n  <\/td><\/tr><tr><td>\n  Direct material\n  Direct wages\n  Direct Expenses\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;\n  Prime Cost<\/strong>\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>Add: <\/strong>Factory Overheads\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;\n  Factory Cost<\/strong>\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>Add: <\/strong>Administration\n  Overheads\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;\n  Cost of Production<\/strong>\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>Add:<\/strong> Selling and\n  Distribution Overheads\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;\n  Total Cost \/Cost of sale<\/strong>\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>TREATMENT OF STOCK<\/strong><\/p>\n\n\n\n<p>While preparing a cost sheet we have to consider the opening\nand closing stocks of the following three items<\/p>\n\n\n\n<ul><li>Stock of Raw materials<\/li><li>Stock of finished goods<\/li><li>Stock of work in progress<\/li><\/ul>\n\n\n\n<p><strong>Stock of Raw\nmaterials:<\/strong> In order to get the cost of material consumed, opening stock of\nmaterial is added to the cost of raw materials purchased and closing stock of\nraw materials is deducted from it.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  Opening stock of raw materials\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>ADD:<\/strong> Purchase of raw\n  material\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>LESS:<\/strong> Closing stock of raw\n  material\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>Cost of materials consumed<\/strong>\n  <\/td><td>\n\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>Stock of Work \u2013 in \u2013\nprogress:<\/strong> The Cost of work in progress are adjusted at the work cost stage<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  <strong>PRIME COST<\/strong>\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  ADD: Works Overhead\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  ADD: Opening stock of work-in-progress\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  LESS: Closing stock of work-in-progress\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>WORKS COST<\/strong>\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>Stock of finished\ngoods: <\/strong>It is adjusted immediately after ascertaining the cost of\nproduction.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  Cost of production\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>ADD:<\/strong> Opening stock of\n  finished goods\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>LESS:<\/strong> Closing stock of finished\n  goods\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  <strong>Cost of goods sold<\/strong>\n  <\/td><td>\n\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>TENDERS OR QUOTATIONS<\/strong><\/p>\n\n\n\n<p>A tender or quotation is an offer made by a person to supply\ncertain goods at a specified price. It is an estimated price which is\ndetermined in advance of production. A reasonable margin of profit is added to\nthe estimated cost to get the tender price. A tender has to be prepared very\ncarefully as the receipts of orders depend upon the acceptance of quotations or\ntenders supplied by the manufacturers. It requires information regarding Prime\ncost, works cost, administration and selling overhead cost and profit of the\npreceding period.<\/p>\n\n\n\n<p><strong>Computation of Tender\nprice<\/strong><\/p>\n\n\n\n<p><strong>I. Calculation of\nTender price on the basis of Percentages of Overheads<\/strong><\/p>\n\n\n\n<p>In this case a cost sheet is prepared for the past period\nwith the total amount of different elements of cost. Here Indirect or overhead\ncosts are charged on a percentage basis. The percentage is calculated on the\nbasis of the past year\u2019s cost sheet. These are calculated as follows:<\/p>\n\n\n\n<p>a. Factory OH is charged as a percentage if direct wages. =<strong>Factory OH x 100\/Direct wages<\/strong><\/p>\n\n\n\n<p>b. Administration OH is charged as a percentage of Factory\ncost = <strong>Administration OH x 100\/ Factory\nCost<\/strong><\/p>\n\n\n\n<p>c. Selling and Distribution OH is charged as percentage of\nFactory cost = <strong>Selling and Distribution\nx 100\/ Factory cost<\/strong><\/p>\n\n\n\n<p>Profit may be calculated either as a percentage of cost or\nselling price. If the given percentage of profit is on selling price, the\npercentage of profit on selling price should be converted into percentage of\nprofit on cost.<\/p>\n\n\n\n<p><strong>II. Computation of\nTender price on the basis of Previous year\u2019s per unit cost:<\/strong><\/p>\n\n\n\n<p>Under this situation, previous periods cost and output\nfigures are available. Tender price is fixed by multiplying the quantity with\nprevious periods per unit cost and adding the required percentage of profit.\nThere are three different situations under this method. <\/p>\n\n\n\n<p><strong>a. When there is no\nchange in past cost and past percentage of profit: <\/strong>In this case a detailed\nprobable cost sheet is prepared by multiplying previous period\u2019s cost of each unit\nwith the quantity of tender. Profit is added at the same percentage of profits\nof the past period.<\/p>\n\n\n\n<p><strong>b. When there is\nchange in past cost, but no change in past percentage of profit:<\/strong> Here the\ncost of the tender is calculated by making necessary adjustments in the elements\nof cost. Same percentage of cost is added as profit to get tender price.<\/p>\n\n\n\n<p><strong>c. When there is\nchange in past cost and past percentage of profit:<\/strong> Here the total cost\ntender is calculated by making necessary adjustments in the cost and the tender\nprice is then calculated by adding the required percentage of profit.<\/p>\n\n\n\n<p><strong>III Calculation of Tender price based on fixed and variable costs:<\/strong> Here, costs are classified according to variability into three types,, fixed, variable and semi variable. Tender price is calculated on the basis of degree of variability.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"production-account\"><span class=\"ez-toc-section\" id=\"PRODUCTION_ACCOUNT\"><\/span><strong>PRODUCTION ACCOUNT<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>If the details of cost sheet or production statement are shown in the form of a ledger account, it is known as production account. Besides cost of production it also includes selling and distribution expenses. It is prepared in three parts &#8211; the first part gives the cost of production, the second part gives the cost of goods sold and the third part shows cost of sales or total cost for the period. A specimen of a Production Account is as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"640\" height=\"630\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/02\/production-account-FINAL.png\" alt=\"\" class=\"wp-image-3382\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/02\/production-account-FINAL.png 640w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/02\/production-account-FINAL-300x295.png 300w\" sizes=\"(max-width: 640px) 100vw, 640px\" \/><\/figure>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"unit-of-measurement\"><span class=\"ez-toc-section\" id=\"UNIT_OF_MEASUREMENT\"><\/span><strong>UNIT OF MEASUREMENT <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Unit of measurement is the vital factor for\ncost ascertainment under unit costing method. There are many units of\nmeasurements. They are units, liter, a dozen, yards or meters, sq.ft., gross,\ntones, bales, milliliter, kilogram\u2019s, bags and the like.<\/p>\n\n\n\n<p>The company can select or adopt any one of\nthe above units of measurement according to the nature of industry.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><td>\n   <strong>Sl.\n   No<\/strong>\n   <\/td><td>\n   <strong>Nature\n   of Industry<\/strong>\n   <\/td><td>\n   <strong>Unit\n   of Measurement<\/strong>\n   <\/td><\/tr><\/thead><tbody><tr><td>\n  1\n  <\/td><td>\n  Sugar\n  <\/td><td>\n  A Quintal\n  <\/td><\/tr><tr><td>\n  2\n  <\/td><td>\n  Bricks\n  <\/td><td>\n  Thousand\n  <\/td><\/tr><tr><td>\n  3\n  <\/td><td>\n  Collieries\n  <\/td><td>\n  A tone of Coal\n  <\/td><\/tr><tr><td>\n  4\n  <\/td><td>\n  Pens, Pencils\n  <\/td><td>\n  Dozen, Gross\n  <\/td><\/tr><tr><td>\n  5\n  <\/td><td>\n  Breweries\n  <\/td><td>\n  A liter\n  <\/td><\/tr><tr><td>\n  6\n  <\/td><td>\n  Cement\n  <\/td><td>\n  Tones\n  <\/td><\/tr><tr><td>\n  7\n  <\/td><td>\n  Paper Mills\n  <\/td><td>\n  A kg of paper, Tones\n  <\/td><\/tr><tr><td>\n  8\n  <\/td><td>\n  Hospitals\n  <\/td><td>\n  Patient &#8211; days\n  <\/td><\/tr><tr><td>\n  9\n  <\/td><td>\n  Dairies\n  <\/td><td>\n  A liter of milk\n  <\/td><\/tr><tr><td>\n  10\n  <\/td><td>\n  Road Transport\n  <\/td><td>\n  Passenger &#8211; Kilometers\n  <\/td><\/tr><tr><td>\n  11\n  <\/td><td>\n  Automobile\n  <\/td><td>\n  No. of units\n  <\/td><\/tr><tr><td>\n  12\n  <\/td><td>\n  Electricity\n  <\/td><td>\n  Kilowatts &#8211; hour\n  <\/td><\/tr><tr><td>\n  13\n  <\/td><td>\n  Cable\n  <\/td><td>\n  Meter or Kilometer\n  <\/td><\/tr><tr><td>\n  14\n  <\/td><td>\n  Steel\n  <\/td><td>\n  Tones\n  <\/td><\/tr><tr><td>\n  15\n  <\/td><td>\n  Chemical\n  <\/td><td>\n  Liter, Kilogram, Tone\n  <\/td><\/tr><tr><td>\n  16\n  <\/td><td>\n  Canteen\n  <\/td><td>\n  Number of Meals, Number of cups of\n  tea or coffee\n  <\/td><\/tr><tr><td>\n  17\n  <\/td><td>\n  Gas\n  <\/td><td>\n  Cubic Meter\n  <\/td><\/tr><tr><td>\n  18\n  <\/td><td>\n  Boiler\n  <\/td><td>\n  Kilograms\n  <\/td><\/tr><tr><td>\n  19\n  <\/td><td>\n  Metal Plating\n  <\/td><td>\n  Square meters\n  <\/td><\/tr><tr><td>\n  20\n  <\/td><td>\n  Flour Mills\n  <\/td><td>\n  Sack of flour\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"ascertainment-of-cost-per-unit\"><span class=\"ez-toc-section\" id=\"ASCERTAINMENT_OF_COST_PER_UNIT\"><\/span><strong>ASCERTAINMENT OF COST PER UNIT <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The main purpose of unit costing is the\nascertainment of cost per unit. It is followed by the object of analyzing the\ncost of each element and its share in the total cost. For this purpose, costs\nare accumulated and analyzed under various elements of cost.<\/p>\n\n\n\n<p>The financial records are used\nfor the collection of direct cost and expenses. The costing records are used\nfor the collection of indirect cost and expenses. The cost records like\nmaterials abstract, wage abstract, time records and cost ledger are some of the\nrecords used for the purpose of cost ascertainment of a unit.<\/p>\n\n\n\n<p>The following formula is used to\nascertain cost per unit.<\/p>\n\n\n\n<p><strong>Cost\nPer Unit<\/strong><strong>&nbsp;= Total Cost \/ Number of Units Produced<\/strong><\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"limitations-of-unit-costing\"><span class=\"ez-toc-section\" id=\"LIMITATIONS_OF_UNIT_COSTING\"><\/span><strong>LIMITATIONS OF UNIT COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Unit\nor&nbsp;output&nbsp;costing is very much important method for ascertaining the\ntotal cost and cost per unit, but it is not&nbsp;free&nbsp;from&nbsp;certain&nbsp;limitations. These are as under:<\/p>\n\n\n\n<p><strong>1.<\/strong><strong> <\/strong><strong>Limitations of&nbsp;<\/strong><strong>historical<\/strong><strong>&nbsp;cost:<\/strong>&nbsp;Unit\nor&nbsp;output&nbsp;costing, being basically of&nbsp;historical&nbsp;nature,\nsuffers from all the defects of&nbsp;historical&nbsp;costing.<\/p>\n\n\n\n<p><strong>2.<\/strong><strong> <\/strong><strong>Useful only for homogeneous&nbsp;products:<\/strong>&nbsp;This\ncosting method can be used only for homogeneous&nbsp;products&nbsp;and not for\nheterogeneous&nbsp;products.<\/p>\n\n\n\n<p><strong>3.<\/strong><strong> <\/strong><strong>Not sufficient for cost control:&nbsp;<\/strong>This\ncosting system simply determines total cost and per unit cost of\nthe&nbsp;products&nbsp;which is by itself not sufficient for cost control.<\/p>\n\n\n\n<p><strong>4. Arithmetical accuracy cannot be checked:<\/strong>&nbsp;Under this system,&nbsp;generally&nbsp;a statement is prepared which does not from a part of the double entry system. Therefore, arithmetical accuracy cannot be checked under this system.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cost-accounting\/\">Cost Accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-cost-accounting-pdf\/\">Scope of cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/elements-of-cost\/\">Elements of cost<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/types-of-cost\/\">Types of cost<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/material-control-in-cost-accounting-pdf\/\">Material control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perpetual-inventory-system\/\">Perpetual inventory system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/pricing-of-materials\/\">Pricing of materials<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/bin-card\/\">Bin Card<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/store-ledger\/\">Stores Ledger<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incentive-plans\/\">Incentive plans<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/overhead\/\">Overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-idle-time\/\">Idle time<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/system-of-wage-payment-in-cost-accounting\/\">System of wage payment in cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-time-rate-system-and-piece-rate-system\/\">Time rate vs piece rate wage system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-centre\/\">Cost Center<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/labor-turnover\/\">Labour Turnover<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Difference between management accounting and cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-and-apportionment-of-overheads\/\">Allocation and apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-allocation-and-apportionment-of-overheads\/\">Allocation vs Apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/absorption-of-overheads\/\">Absorption of overheads<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/over-absorption-and-under-absorption-of-overheads\/\">Over absorption and under absorption of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/activity-based-costing\/\">Activity based costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-traditional-costing-and-activity-based-costing\/\">Traditional costing vs ABC system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reconciliation-of-accounts\/\">Reconciliation of accounts<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/unit-costing\/\">Unit costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-format\/\">Cost sheet format<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-vs-production-account\/\">Cost sheet vs production sheet<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/job-costing\/\">Job costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/batch-costing\/\">Batch Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-batch-costing\/\">job costing vs batch costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/contract-costing\/\">Contract costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-contract-costing\/\">Job Costing vs Contract costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/process-costing\/\">Process Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-costing-vs-job-costing\/\">Process costing vs job costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-products\/\">Joint products<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/by-products\/\">By Product&nbsp;<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/equivalent-production\/\">Equivalent production<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/marginal-costing\/\">Marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/applications-of-marginal-costing\/\">Application of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-volume-profit-analysis\/\">Cost volume profit analysis<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/tools-and-techniques-of-marginal-costing\/\">Tools and techniques of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budget\/\">Budget<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/break-even-point\/\">Break even point<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-budgetary-control\/\">Process of budgetary control<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explain-the-advantages-and-limitations-of-budgetary-control\/\">Advantages and limitations of budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budgetary-control\/\">Budgetary Control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/zero-base-budgeting\/\">Zero base budgeting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/standard-costing\/\">Standard Costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/variance-analysis\/\">Variance Analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-standard-costing-and-budgetary-control\/\">Standard costing vs budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Management accounting vs cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\">Cost accounting vs financial accounting<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"259\" height=\"194\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/01\/download-44.jpg\" alt=\"UNIT COSTING\" class=\"wp-image-5079\"\/><figcaption><strong>UNIT COSTING<\/strong><\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>UNIT COSTING Unit costing refers to the costing procedure, under which costs are accumulated and analyzed under different elements of cost and then cost per unit is ascertained by dividing the total cost by number of units produced. It is ideally used in case of concerns producing a single article on large scale by continuous&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/unit-costing\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;UNIT COSTING&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3375,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[187],"tags":[],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3373"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3373"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3373\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3375"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3373"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3373"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3373"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}