Unit costing is known as “output” or “single output” costing. Unit costing is followed by the concern, which produces a single product on large scale continuously. The cost units are identical costs. Moreover, the products are having uniform homogeneous character. This product is not produced through continuous process. This is the main difference between unit costing and process costing.
Sometimes, two or more grades of one product is produced by a concern. If so, the single or output costing is followed. If one product is produced, the cost collection and cost ascertainment is very easy.
Under this method, the total costs incurred is divided by total production to determine the cost per unit. Moreover, the cost is collected element wise and the cost of each element is divided by total production to determine the cost per unit of each element.
The statement of cost is prepared which includes the figures for previous period to provide comparison and control. Unit costing is successfully followed in the production of homogeneous products like bricks, pencil, pen, books, computer, laptop and the like.
Cost Accumulation procedure in Unit Costing
The cost details of various elements of costs are collected from the financial records. For which, the financial records can be suitably designed. Hence, there is no need of maintaining separate set of books for collecting costing information. The following costing information is required for unit costing.
1. The Value of Raw Materials Consumed
The material requisition slip is the basis for collecting the value of raw materials consumption. The materials are issued only on the basis of authorized material requisition slip.
The authorization slip discloses the details of quantity of materials with values in various grades and types. If the materials are damaged during storage and handling, adjusted by raising the issue price of materials, so as to indicate normal loss. The abnormal loss should be charged to costing Profit and Loss Account.
2. Cost of Labour
The labour is divided into two categories ie direct labour and indirect labour. If the workers are directly engaged in the manufacturing activities, they are treated as direct labour and can be identified and calculate the direct labour with the help of production details. A few workers engaged in general factory activities; they can be put in a separate category in wage sheet.
The overheads are classified on functional basis for unit costing purpose. The factory overhead or production overhead, office and administration overhead and selling and distribution overhead are the classification of overhead. These overheads are recovered on predetermined rate for cost accounting purposes.
The actual overheads incurred are collected from the financial records. The cost statements are prepared at short intervals with the help of predetermined overhead rate.
Unit of Measurement in Unit Costing
Unit of measurement is the vital factor for cost ascertainment under unit costing method. There are many units of measurements. They are units, liter, a dozen, yards or meters, sq.ft., gross, tones, bales, milliliter, kilogram’s, bags and the like.
The company can select or adopt any one of the above units of measurement according to the nature of industry.
Nature of Industry
Unit of Measurement
A tone of Coal
A kg of paper, Tones
Patient - days
A liter of milk
Passenger - Kilometers
No. of units
Kilowatts - hour
Meter or Kilometer
Liter, Kilogram, Tone
Number of Meals, Number of cups of tea or coffee
Sack of flour
Ascertainment of Cost Per Unit in Unit Costing
The main purpose of unit costing is the ascertainment of cost per unit. It is followed by the object of analyzing the cost of each element and its share in the total cost. For this purpose, costs are accumulated and analyzed under various elements of cost.
The financial records are used for the collection of direct cost and expenses. The costing records are used for the collection of indirect cost and expenses. The cost records like materials abstract, wage abstract, time records and cost ledger are some of the records used for the purpose of cost ascertainment of a unit.
The following formula is used to ascertain cost per unit.
Cost Per Unit = Total Cost / Number of Units Produced