Unit or Output Costing (Cost Sheet)

Introduction

When a factory makes a single, uniform product in large quantities, such as cement, bricks, sugar or bottled water, management wants to know exactly what one unit of that product costs. Unit or output costing answers this question, and it does so through a statement called the cost sheet. This chapter studies the meaning and importance of unit costing, the build up of cost through the cost sheet, and the use of the cost sheet to quote a price on a tender.

Meaning and importance

Unit costing, also called output or single costing, is the method of finding the cost per unit where production consists of a single uniform product or a few grades of one product. It is important because it shows the cost of one unit, which is the basis for fixing the selling price, it reveals how much each element (material, labour, overhead) contributes to total cost, it lets management compare the cost of one period with another to judge efficiency, and it provides the figures needed to prepare quotations and tenders.