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Unit Costing.pptx
This document provides information about unit costing and cost sheets. It defines key costing terms like unit cost, prime cost, factory cost, office cost, selling and distribution cost, and total cost. It explains the objectives and components of a cost sheet, including a sample proforma cost sheet. Examples are provided to demonstrate how to calculate costs from raw material consumption, work in progress, finished goods, and to prepare a full cost sheet. The treatment of scrap and various cost control techniques are also summarized.
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Introduction to unit costing and its definition as the cost to produce one unit of a product.
Objectives include cost classification, estimating future costs, and comparing with previous trends.
Cost sheets detail the assembly of costs, including prime, factory, office, and total costs of production.
Methods to compute profit, and items excluded from cost sheets like capital expenses and taxes.
Examples on preparing cost sheets for jeans and other products, detailing costs like materials, wages, and overhead.
Discussion on materials stock (WIP and finished goods) and treatment of scrap in the cost computation.
Further examples on calculating prime cost, works cost, and production costs from provided data.
Definitions and differences between tenders and quotations in business contexts.
Methods for managing costs to ensure they stay within limits and how actual performance is monitored.
Definition and goals of cost reduction, emphasizing continual efforts to lower costs without sacrificing quality.
References for further reading on the topics of quotations, tenders, cost control, and reduction.
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Unit Costing.pptx
- 1.
- 2. Unit Cost Cost incurredby a company to produce, store and sell one unit of a particular product.
- 3. Objectives • to providethe classification of costs in a summarised form • to prepare estimates of costs for future use and • to facilitate a comparative study of costs with previous cost sheets to know the cost trends.
- 4. COST SHEET A documentwhich provide for the assembly of the detailed cost of a cost centre or cost unit. Cost sheet is a statement presenting the items entering cost of products or services. It shows the total cost components by stages and cost per unit of output during a period.
- 5. Proforma of CostSheet Particulars Total Cost (Rs.) Cost per unit (Rs.) Direct Materials Direct Labour Direct Expenses Prime cost Works Overhead Works Cost/Factory Cost Office & Adm. Overheads Cost of Production Selling & Dist. Overheads Total Cost or Cost of Sales Profit or Loss (Balancing Figure) Sales
- 6. Prime Cost It isthe combination of a manufactured product's costs of direct materials and direct labor. It consists of costs of direct material, direct labour, and direct expenses. It is also known as basic, first or flat cost.
- 7. Factory Cost It comprisesprime cost and, in addition, works or factory overheads which include costs of indirect material, indirect labour and indirect factory expenses. This cost is also known as works cost, production or manufacturing cost
- 8. Office Cost • Itcomprises of factory cost and office and administrative overheads. • This is also termed as total cost of production.
- 9. Selling & Distribution Cost Theprice of the entire process, from packing the product to making it suitable for shipping to making the reconditioned returned empty package usable again.
- 10. Total Cost • Itcomprises of cost of production and selling and distribution overheads. • It is also termed as cost of sales.
- 11. Computation of Profit Profit maybe calculated either as a percentage of cost or selling price.
- 12. Items Excluded fromCost Sheet • Expenses on acquisition of capital • Income Tax • Dividends on capital • Charities • Abnormal wastage of materials • Donations, staff pension fund • Discount on debentures • Transfer to reserves • Underwriting commission • Capital losses • Preliminary expenses • Rent, interest & commission received • Cost of abnormal idle time • Compensations • Fines and penalties • Goodwill
- 13. Example - 1 •Number of Jeans manufactured during the month 1,000 • Direct materials consumed 20,000 • Direct labour 8,000 • Indirect labour (in factory) 2,500 • Supervision costs (in factory) 1,000 • Factory premises rent 1,600 • Factory lighting 600 • Oil for machines 100 • Depreciation of machines 500 • Office overheads 8,000 • Office salaries 2,000 • Misc. office expenses 1,000 • Selling and distribution overheads 6,000 Prepare a cost sheet of the following data relating to the manufacture of Jeans: A profit margin of 20% on the total cost of goods is expected on the sale of Jeans.
- 14. Example – 2 •Direct material 57,000 • Direct wages 28,500 • Factory rent and rates 2,500 • Office rent and rates 500 • Plant repairs and maintenance 1,000 • Plant depreciation 1,250 • Factory heating and lighting 400 • Factory manager’s salary 2,000 • Office salaries 1,600 • Director’s remuneration 1,500 • Telephone and postage 200 • Printing and stationery 100 • Legal charges 150 • Advertisement 1.500 • Salesmen’s salaries 2,500 • Showroom rent 500 • Sales 1,16,000 From the following information for the month of January, prepare a Cost Sheet to show the following components : (a) Prime Cost, (b) Factory Cost, (c) Cost of Production, (d) Total Cost.
- 15. Treatment of Certainitems in the Cost Sheet The term ‘Stock’ includes three items: raw materials, work in progress and finished goods
- 16. Cost of Materialsconsumed Opening stock of raw material Add Purchases Add Expenses involved in the purchases of raw material Less Closing stock of raw materials Cost of Materials consumed
- 17. Example – 4 Calculatematerials consumed from the following information. • Opening stock of raw materials 130,000 • Purchases 1,80,000 • Closing stock of raw materials 1,20,000
- 18. Stock of Work-in-Progress PrimeCost Add: Factory overhead Add: Opening stock of work-in-progress Less: Closing stock of work-in-progress Works Cost or Factory Cost
- 19. Example – 5 Fromthe following information, calculate Factory Cost. • Direct materials consumed 1,93,000 • Direct wages 1,22,000 • Factory overhead 1,24,000 • Closing stock of work-in-progress 18,000 • Direct expenses 15,000 • Opening stock of work-in-progress 1,14,000
- 20. Stock of FinishedGoods Prime cost Add: Factory OH Factory cost Add: Administration OH Cost of Production Add: Opening stock of finished goods Less: Closing stock of finished goods Cost of Goods Sold
- 21. Example – 6 CalculateCost of Goods Sold from the following information. • Factory cost 1,50,000 • Administration overhead 10,000 • Cost of Production 1,60,000 • Opening stock of finished goods 30,000 • Closing stock of finished goods 22,000
- 22. Cost Sheet Opening stockof raw material Add Purchases Add Expenses involved in the purchases of raw-material Less Closing stock of raw materials Cost of Materials Consumed Direct Labour Direct Expenses Prime cost Add: Factory OH Add: Opening stock of work-in-progress Less: Closing stock of work-in-progress Works Cost or Factory Cost Add: Administration OH Cost of Production Add: Opening stock of finished goods Less: Closing stock of finished goods Cost of Goods Sold Add: Selling and Distribution OH Total Cost Add: Profit Sales
- 23. Example – 7 •Stock of raw materials on 1st Sept., 2022 75,000 • Stock of raw materials on 30th Sept., 2022 91,500 • Direct wages 52,500 • Indirect wages 2,750 • Sales 2,00,000 • Work-in-progress on 1st Sept., 2022 28,000 • Work-in-progress on 30th Sept., 2022 35,000 • Purchases of raw materials 66,000 • Factory rent, rates and power 15,000 The ABC Ltd. supplies you the following information and requires you to prepare a cost sheet. • Depreciation of plant and machinery 3,500 • Expenses on purchases 1,500 • Carriage outward 2,500 • Advertising 3,500 • Office rent and taxes 2,500 • Travellers’ wages and commission 6,500 • Stock of finished goods on 1st Sept., 2022 54,000 • Stock of finished goods on 30th Sept., 2022 31,000
- 24. Treatment of Scrap •Scrap can take the shape of metal or wood cuttings, trims, borings, etc. in some manufacturing sectors. • Scrap can typically be sold for a certain price. • While creating the cost sheet, the realisable value of scrap is subtracted from factory overheads or factory costs.
- 25. Format Prime Cost Add: FactoryOH Less: Scrap Factory or Works Cost
- 26. Example – 8 •Raw materials purchased 32,250 • Carriage on purchases 850 • Direct wages 18,450 • Factory overhead 2,750 • Selling overhead 2,450 From the following information prepare a cost sheet to show: (a) Prime cost; (b) Works cost; (c) Cost of production; (d) Cost of sales; and (e) Profit. • Office overhead 1,850 • Sales 75,000 • Sale of factory scrap 250 • Opening stock of finished goods 9,750 • Closing stock of finished goods 11,100
- 27. Example – 9 Thefollowing extracts of costing information relate to commodity X for the year ending 31-12-2022. • Purchases of raw materials 6,000 • Direct wages 5,000 • Rent, rates and insurance 2,000 • Carriage inwards 100 • Stock (1-1-2022) : Raw materials 1,000 • Finished products — 200 tonnes 800 • Stock (31-12-2022) : Raw materials 1,100 • Finished products — 400 tonnes • Cost of factory supervision 400 • Sale of finished products 15,000 Advertising and selling cost is 40 paise per tonne sold. 3,000 tonnes of the commodity were sold during the year. Prepare a Cost Sheet.
- 28. Tenders and Quotations Preparingtenders or quotation manufacturers or contractors have to look into the figures pertaining to the previous year as shown in the cost sheet for that period.
- 29. Tender The process whereby governmentsinvite bids for large projects that must be submitted within a finite deadline.
- 30. Quotation A formal statementof promise (submitted usually in response to a request for quotation) by potential supplier to supply the goods or services required by a buyer, at specified prices, and within a specified period.
- 31. Difference between tender and quotations Tender inbusiness means a type of quotation offering lowest prices for supply of some goods or service or job works. Normally, in tender you have to deposit some amount (refundable or non-refundable), whereas it is not compulsory in quotation.
- 32. Cost control Cost controlensures that spending remains within set parameters. Managers and executives are held accountable for controlling operational costs in this strategy. If there is a deviation from these defined norms, it is constantly recognised and reported.
- 33. Pre- requisites Establishment of powerand responsibility, i.e., each cost centre must be assigned to a responsible manager's name. There should be clear objectives. Individuals should be encouraged to meet goals through monetary or non-monetary incentives. The results should be reported in a timely and efficient manner. Following a comparison of actual performance to budgets, suitable recommendations and measures should be taken. Proper follow-up is required to guarantee effective execution of recommendations.
- 34. Steps Pre-defined standards are determined. Actualperformance evaluation Actual performance is compared to benchmarks Analysis of variance and Action
- 35. Cost reduction A managementtechnique in which the cost of an object is constantly regarded to have potential for further reduction is known as cost reduction. Because there is no such thing as the lowest cost, every cost-cutting option is considered.
- 36. Cost reduction The unitcost of products produced, or services supplied is reduced. Cost reduction is an ongoing process. The quality of goods or the utility of services is not affected, if anything, it is improved.
- 37. Check-points • Whether personneland material waste are minimised to a minimum level. • Is there any way to cut down on idle capacity? • Whether there is any time and money wasted as a result of delays in moving resources from one production activity to another. • Whether stores and maintenance services are efficient.
- 38. Actions • Analyze thevalue chain • Consistent research • Other current methods
- 39. Objective of costcontrol and reduction • The purpose of cost control is to keep costs within predetermined parameters. • Cost reduction, on the other hand, is focused with lowering costs. • It puts all standards to the test and attempts to improve them on a regular basis.
- 40. Differences Cost control Costreduction Meaning To control costs, actual costs are compared to budgeted values. Obtaining a genuine and long-term reduction in the unit cost of items produced. Aim Costs must be kept within defined limits. To make ongoing efforts to cut costs Approach Variance analysis and standard costing Improvisation in the production of a product or the provision of a service under existing conditions Emphasis The past and the present Present and future Nature Preventive function Corrective function Process Ends when targets are achieved Continuous process
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