What is Unit or Output Costing? In which industries it is used?(2019)
Meaning of Unit Costing:
Unit costing (also known as output costing or single costing) is a costing method used to determine the cost per unit of output when a business produces a single product or a uniform product in large quantities.
Under this method, all costs (direct and indirect) incurred during a period are collected and divided by the number of units produced to calculate the cost of producing one unit.
Key Point:
It is best suited for industries with standardized and continuous production.
How to calculate per unit cost
Example:
If a company produces 10,000 bricks at a total cost of ₹50,000, then the cost per unit is:
₹50,000\10,000= ₹5 per brick.
Unit or Output Costing:
Unit costing, also known as output costing or single costing, is a method of costing used to determine the cost per unit of a product when a company produces a single product or a large quantity of identical units.
In this method, the total cost of production (including direct and indirect costs) is divided by the total number of units produced during a period to arrive at the cost per unit. How to calculate per unit cost as per following formula
Formula:
Industries Where Unit Costing is Used:
Unit costing is ideal for industries where products are homogeneous (identical) and produced on a continuous basis. Common industries include:
Unit costing is used in industries where production is:
- Continuous
- In large volumes
- Of identical or homogeneous products
Examples of such industries include:
- Cement Industry – producing uniform cement bags.
- Steel Industry – manufacturing steel bars or sheets.
- Brick Manufacturing – mass production of identical bricks.
- Oil Refining – refining crude oil into standard fuel units.
- Paper Mills – producing sheets or rolls of paper.
- Sugar Industry – producing standardized sugar units.
- Electricity Generation – calculating cost per kilowatt-hour.
- Water Supply Services – determining cost per litre/cubic meter.
These industries benefit from unit costing because it helps in controlling cost and setting selling prices efficiently for mass-produced goods. how to calculate per unit cost
These industries typically deal with bulk production of a single product, making unit costing practical and effective.
Conclusion of Unit Costing:
Unit costing is a simple and effective method for determining the cost per unit of production in industries where products are identical and produced in large quantities. It helps businesses control costs, set appropriate selling prices, and make informed decisions. Due to its straightforward nature, it is especially suitable for industries like cement, steel, electricity, and oil refining, where uniform products are produced continuously.
Essential questions of Cost Accounting
you can check the syllabus of cost Accounting on the official website of gndu.