## Chapter 7: Unit & Batch Costing — Unit Costing
### Why different methods of costing?
Different industries need cost information presented differently. Broadly, industries fall into two types:
- Job-work industries — execute special orders, each order distinguishable from the others.
- Continuous / process-type industries — continuous production of uniform products to standard specifications.
### Unit Costing — meaning
Unit (output / single) costing is the method where the output produced is identical and each unit requires identical cost. Costs are collected and analysed element-wise, and the cost per unit is found by division.
> Cost per Unit = Total Cost of Production ÷ No. of Units Produced
It is followed by industries producing a single output or a few variants of a single output (e.g. cement, steel, breweries).
### Cost Collection Procedure
A. Material Cost
- Collected from Material Requisition Notes, accumulated for a period/volume of activity.
- Posted into the cost accounting system; a cost sheet is prepared element-wise and function-wise.
B. Labour Cost
- Direct employee cost collected from job time cards/sheets, valued at appropriate rates and entered in the cost system.
- Indirect labour collected from payroll books, posted against standing order / expense code numbers in the overhead ledger.
C. Overheads
- Collected under standing order numbers (and S&D overheads against cost account numbers).
- Apportioned to service and production departments on a suitable basis; service department costs are reapportioned to production departments, whose total overhead is then applied to products on a realistic basis.
### Treatment of Spoiled & Defective Work
| Circumstance | Treatment |
|---|---|
| Normal reasons | If actual defectives are within the normal limit, charge rectification/loss to the entire output. The portion beyond normal limits is written off in the Costing P&L Account. |
| Abnormal reasons | Entire rectification cost / loss is written off as a loss in the Costing P&L Account. |