Unit Costing.pptx

This PPT describes the Unit Cost method in Cost Accounting.

1. Unit Costing

2. Unit Cost Cost incurred by a company to produce, store and sell one unit of a particular product.

3. Objectives to provide the 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

5. Proforma of Cost Sheet 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

7. Factory Cost

8. Office Cost It comprises of factory cost and office and administrative overheads. This is also termed as total cost of production.

9. Selling & Distribution Cost The price 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 It comprises of cost of production and selling and distribution overheads. It is also termed as cost of sales.

11. Computation of Profit Profit may be calculated either as a percentage of cost or selling price.

12. Items Excluded from Cost 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 Certain items in the Cost Sheet The term ‘Stock’ includes three items: raw materials, work in progress and finished goods

16. Cost of Materials consumed 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 Calculate materials 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 Prime Cost 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 From the 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 Finished Goods 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 Calculate Cost 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 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 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 1 st Sept., 2022 75,000 Stock of raw materials on 30 th Sept., 2022 91,500 Direct wages 52,500 Indirect wages 2,750 Sales 2,00,000 Work-in-progress on 1 st Sept., 2022 28,000 Work-in-progress on 30 th 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 1 st Sept., 2022 54,000 Stock of finished goods on 30 th 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: Factory OH 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 The following 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 Preparing tenders 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 governments invite bids for large projects that must be submitted within a finite deadline.

30. Quotation A formal statement of 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

32. Cost control

33. Pre-requisites

34. Steps

35. Cost reduction

36. Cost reduction

37. Check-points Whether personnel and 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 the value chain Consistent research Other current methods

39. Objective of cost control 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 Cost reduction 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

41. References http://www.slideshare.net/RohitMahindrakar2/cover-letter-quotations-tender-etender https://finlawportal.com/the-difference-between-cost-control-and-cost-reduction/