1. Chapter 3
SINGLE OR
OUTPUT COSTING

2. MEANING
• Single or output costing is a method of
costing by the UNIT OF PRODUCTION.
• It is adopted by concerns producing a
single article on a large scale by a
continuous process of manufacture, and all
the units produced are identical and
homogeneous.

3. UTILITY
• Thus Single or output costing is employed in case of
industries where:
1) The production is uniform and continued affair
2) The units of production are identical
3) The cost units are physical or units of production are
capable of being expressed in convenient unit of
measurement.
• Examples: sugar mills, paper mills, dairies, cement
works, quarries, etc
• There is a cost unit such as : tonne of coal or cement or
sugar, a gallon of milk etc

4. Costing Procedure
• Analysis of the different elements of expenditure to
determine:
• prime cost,
• factory cost,
• office cost and
• total cost.
• Determination of per unit cost
– Total expenditure divided by the quantity produced.
• Classification of expenditure at regular intervals e.g.
monthly, quarterly or half-yearly
• Preparation of COST SHEET
• Comparative figures of preceding period are provided

5. ELEMENTS OF COST
Direct Direct Direct
Overhead
Material Labour Expenses
Selling &
Factory Administrative Distribution
Overhead Overhead Overhead
Indirect Indirect Indirect
Material Labour Expenses

6. Components of Total Cost
• Prime Cost = Direct Materials + Direct Labour
+ Direct Expenses.
Factory/Works Cost = Prime Cost + Factory
Overheads
Cost of Production = Works Cost +
Administration Overheads
Total Cost or Cost of Sales = Cost of Production +
Selling & Distribution Overheads
The difference between the cost of sales and selling price
represents profit or loss.

7. Cost Sheet
• A cost sheet is a statement that provides a
logical, detailed and systematic
presentation of various elements of cost
information obtained through the cost
records.
It is a statement designed to show the output
of a particular accounting period alongwith
break-up of cost.

8. Cost Sheet
• It discloses the total cost and cost per unit.
• It helps
1. To estimate cost
2. To fix Selling Price.
3. To submit quotation price/tender price.
4. To Control cost.

9. Items Shown in
Cost Sheet

10. Direct Materials Cost
• It is the cost of materials which can be identified
with and allocated to cost units or cost centres.
• Includes cost of:
a. Raw materials
b. Parts or components
c. Materials purchased specially for a job,
process, work order
d. Primary packing materials.
e. Material procurement expenses such as
carriage, import duty, freight, octroi charges.

11. Direct Labour Cost
• It is the remuneration of workers/employees who
are directly engaged in the production of the
product
• It includes:
a. Wages, salaries, bonus, DA, city compensatory
allowance, overtime wage etc of labour engaged
in actual production including supervision,
inspection and analysts engaged in a particular
job
b. Fringe benefits like leave salary, PF
contribution, gratuity

12. Direct Expenses
All such expenses (other than direct material
and direct wages ) as have been
specifically incurred for a job, process, or
product line and can be identified with and
allocated to cost centres or cost units.
Examples :
a. Cost of special designs, moulds, blue-prints
b. Experimental/trial expenses
c. Hire charges of special equipment
d. Fees paid to architects, consultants and surveyors for
specific job
e. Royalties for land, mine, trademark

13. OVERHEADS

14. FACTORY/WORKS OVERHEADS
• Power, fuel ,coal, gas, water.
• Lighting, heating ,cleaning, haulage, cooling.
• Cleaning and oiling of machines.
• Rent, rates, taxes, insurance of the factory.
• Repairs, maintenance, depreciation of factory building,
equipment, plant and machinery.
• Supervision, surveying, testing and inspection expenses
• Salaries and wages of time-keepers, watchmen, gate-
keepers, foremen, works manager.
• Procurement expenses of materials, spares & loose
tools
• Storage costs
• Drawing & designing expenses
• Training costs
• Rectifying defective products.

15. ADMINISTRATION OVERHEADS
• Remuneration of office staff.
• Office rent, lighting, postage, telephone.
• Directors and General Managers fees & remuneration
• Salaries of secretary & accountant
• Auditors’ fees
• Legal fees & consultants’ charges
• Repairs , maintenance, insurance and depreciation of
office furniture, equipment, vehicles & building.
• Bank charges.

16. SELLING AND DISTRIBUTION
OVERHEADS
Selling Overheads
• Selling and commission of salesmen & agent
• Travelling expenses
• Free samples
• Showroom & display expenses
• Advertising & publicity
• Trade fairs & Exhibition
• Packing expenses
• Carriage & freight on goods sold
• Discounts, bad debts & collection charges
• Sales office –rent, salaries, electricity, stationery,
postage & telephone.
• Repairs, maintenance, insurance & depreciation of
assets.

17. SELLING AND DISTRIBUTION
OVERHEADS
Distribution Overheads
• Rent, insurance & other expenses on warehouses &
godowns.
• Depreciation of handling equipment & warehouse
building.
• Repairs, insurance, depreciation and running
expenses of delivery vans.
• Freight, insurance and carriage on goods sent to
warehouses.
• Salaries of godown keepers & other staff in
warehouses.

18. Items Excluded From Cost Records
• The total cost of a product should include only
those items of expenses which are a charge
against profit.
• Items which are relating to capital assets, capital
losses, payments by way of distribution of
profits and matters of pure finance would not
form part of the costs.

19. Items Excluded From Cost Records
a. Cost of raising loans and finance – discount on
issue of debentures and shares, underwriting
commission and brokerage paid on such issues.
b. Interest on debentures, loans, interest received on
investments.
c. Losses or gains of capital nature or on sale of fixed
assets, writing off goodwill, preliminary expenses
written off.
d. Capital expenditure i.e. fixed assets purchased
e. Incomes such as, property rent, dividend received,
transfer fees etc.
Cont……

20. Items Excluded From Cost Records
f. Appropriation of profits such as : dividend paid,
transfers to various reserves, provisions for sinking
funds for replacement of assets, income tax.
g. Unusual expenses like expenses on shifting the
business to a new building.
h. Cash discount
i. Abnormal idle time, excessive depreciation.
j. Items of expenses and incomes of purely financial
and non-operational nature eg income tax and
donations

21. Format of Cost Sheet

22. Particulars Total Cost Cost Per
Unit
Direct Materials XXX XXX
Direct Wages XXX XXX
Other Direct Expenses XXX XXX
Prime Cost XXX XXX
Add: Factory/Works overhead XXX XXX
Factory Cost XXX XXX
Add: Administrative overheads XXX XXX
Cost of production XXX XXX
Add:Selling & Distribution overheads XXX XXX
Cost of Sales XXX XXX

23. Example 1
Rs. Rs.
Direct materials 80,000 Lighting-Factory 1,000
Direct wages 40,000 -Office 400
Indirect wages 10,000 Carriage outward 300
Direct Expenses 12,000 General selling Expenses 2,000
Electric Power 1,000 Storeskeeper’s wages 1,200
Depreciation of Office 1,000 Office Printing & 500
Building Stationery
Depreciation of Plant and 2,000 Travelling Expenses 1,000
Machinery
Director’s fees 2,000 Telephone charges 800
Oil And Waste 200 Rent – Factory 2,000
Lubricants 300 - office 1,000
Consumable stores 1,000 Manager’s Salary 3,000
Bad Debts 2,000 General factory Expenses 500
Postage & Telegraph 500

24. Treatment of stock
Stock may be of
• Raw material
• Work-in-Progress
• Finished Goods

25. Stock of Raw Materials
• Raw Materials consumed is computed as
follows:
Rs.
Opening stock of raw materials XX
Add: Purchases
(including expenses on purchase XX
XX
Less: Closing Stock of Raw Materials XX
Cost of Raw Materials consumed XX

26. Particulars Total Cost Cost Per
Unit
Direct Materials consumed XXX XXX
Direct Wages XXX XXX
Other Direct Expenses XXX XXX
Prime Cost XXX XXX
Add: Factory/Works overhead XXX XXX
Factory Cost
y
XXX XXX
Add: Administrative overheads XXX XXX
Cost of production XXX XXX
Add:Selling & Distribution overheads XXX XXX
Cost of Sales XXX XXX

27. Stock of Work-In-Process
Work-in-process(W-I-P) refers to units on which some
work has been done but which are not yet complete.
Adjustment of opening W-I-P and closing W-I-P is as
follows:
Rs.
Prime Cost XX
Add: Factory overhead XX
Add: Opening W-I-P XX
Less: Closing W-I-P XX
Factory Cost XX

28. Stock of Finished Goods
Rs.
Cost of Production XX
Add: Opening Stock of Finished Goods XX
XX
Less: Closing Stock of finished Goods XX
Cost of Goods Sold XX

29. Cost sheet for the period………….
Particulars Total Cost Cost Per
Unit
Direct Materials consumed XXX XXX
Direct Wages XXX XXX
Other Direct Expenses XXX XXX
Prime Cost XXX XXX
Add: Factory or Works Overhead XXX XXX
Factory Cost (Gross) XXX XXX
Add : opening work-in-progress XXX XXX
Less : Closing work-in-process (XXX) (XXX)
Factory Cost (net) XXX XXX
Add:Administrative overheads XXX XXX
Cost of production XXX XXX
Add : opening stock of finished goods XXX XXX
Less : Closing stock of finished goods (XXX) (XXX)
Cost of Goods Sold XXX XXX
Add : Selling Overheads XXX XXX
Cost of Sales XXX XXX

30. Example 2
Rs. Rs.
Opening stock of raw 1,50,000 Factory rent, rates and 30,000
materials power
Closing stock of raw 1,80,000 Depreciation of Plant and 7,000
materials Machinery
Direct wages 1,00,000 Repairs of Machinery 3,000
Indirect wages 10,000 Advertising 12,000
Opening W-I-P 55,000 Office rent & taxes 5,000
Closing W-I-P 70,000 Salesmen salaries & 15,000
Commission
Sales 4,00,000 Opening Stock of Finished 1,00,000
Goods
Purchase of Raw Materials 1,30,000 Closing Stock of finished 65,000
Goods
Carriage inwards 5,000 Sale of Scrap 2,000

31. Example 3
• The following data relate to the manufacturing of a standard product during the month ended 31 March 2007:
• Prepare a cost sheet and statement of profit
Raw materials consumed Rs 15,000
Direct wages Rs 9,800
Machine hours worked 2,300 Hrs.
Machine hour rate Re.0.50
Office overheads 10% of works cost
Selling overheads Re. 0.10 per unit
Units produced 19,030
Units sold 11,418 @ Rs. 2 each

32. Example 4
• The following details are available from the books of Sea Products
Ltd. for the year ending 31st Dec. 2007
Rs. Rs.
Direct wages 6,00,000 Printing and stationery 12,000
Purchase of materials 7,20,000 Accountants salary 12,000
Indirect materials 36,000 Sales 18,00,000
Office rent 8,640 Stock 1-1-2007 1,20,000
-Raw materials
Wages of foremen and 48,000 -work-in-progress 28,800
storekeepers
Other indirect wages 6,000 -finished products
(units) 6,000
Cost of research and 30,000 Stock 31-12-2007 1,33,440
experiments -Raw materials
Office manager’s salary 72,000 -work-in-progress 96,000
Employees’ State 6,000 -finished products
Insurance (units)
12,000
Power, fuel and haulage 54,000 Income Tax 22,000
Drawing expenses 36,000 Donation 5,000

33. Example 4(cont….)
• The selling and distribution expenses are to be
charged at Re. 1 per unit. During the year 2007
units produced were 96,000. prepare a cost
sheet showing the different elements of cost
and the profit.

34. ADVANTAGES OF COST SHEET
• It discloses the total cost and the cost per unit of the
units produced during the given period.
• Cost control-It enables a manufacturer to keep a close
watch and control over the cost of production.
• Enable determination of variances and taking
corrective measures - by providing a comparative study
of the various elements of current costs with the past
results and standard costs.
• Guides in formulating production policy by estimating
costs.
• Helps in price fixation
• Helps to minimise the cost of production during cut-
throat competition.
• Helps to submit reasonably accurate quotations against
tenders for the supply of goods.

35. Cost Estimation
•It is the process of determining in advance the cost
of a product, job, order or service.
• In cost estimation, an allowance is made for anticipated
fluctuations in the prices of elements of cost i.e.
materials, labour and overheads.

36. Purpose of Cost Estimation
1. Bidding for contracts and offering quotations.
2. Preparation of budgets for budgetary control and
cost control.
3. Performance Evaluation
4. Preparation of projected financial statements.

37. Tender Price
• Tender is an offer inviting quotations to do a certain
work.
• Cost sheet is useful for determining tender/bid price by
providing information elementwise and componentwise
• In preparing tender price probable changes in the input
prices should be taken into account.
• Fixed costs should be ignored if the tender output can
be met out of the existing plant capacity of the firm.

38. Example 5(Determination of Tender Price)
The following cost data is of Stove Manufacturing Co. Ltd
for current year ending March 31.
Rs.
Opening Materials Inventory 70,000
Closing Materials Inventory 9,800
Purchase of Materials 1,05,000
Factory Wages 1,90,000
Factory expenses 35,000
Establishment Expenses 20,000
Opening finished stock Nil
Closing finished stock 70,000
Sales 3,78,000

39. Example 5 (Cont….)
The number of stoves manufactured during the year was
8,000.
The company wants to quote for the supply of 2,000
stoves for the coming year.
The stoves to be quoted are similar to the current year but
cost of materials is expected to increase by 10% and
factory labour by 20%.
Prepare a statement showing the price to be quoted so as
to give the same percentage of profit on turnover as was
realised during the current year assuming that other costs
will be the same as in the previous year.