Types of Cost Units

Unit rate is a rate in which the rate is expressed as a quantity of 1. Unit price is the rate when it is expressed in unit currency like dollar or cent. An example is price of corn is $2 per ounce and price of petrol is $5 per gallon. Remember that the price is always the numerator and the unit is the denominator.

You could also find the unit rate by dividing the first term of the ratio by the second term. When a price is expressed as a quantity of 1, such as $25 per ticket or $0.89 per can, it is called a unit price.

A rate is a ratio that compares two quantities of DIFFERENT. kinds of UNITS. A unit rate has a denominator of 1 unit when the rate is written as a fraction.

The unit price can be found using a simple formula if the quantity and total cost is known. Simply divide the total price by the quantity to find the unit price. Thus, the unit price is equal to the total price divided by the quantity.

A unit cost is a total expenditure incurred by a company to produce, store, and sell one unit of a particular product or service. This accounting measure includes all of the fixed and variable costs associated with the production of a good or service.

Unit or output costing is that method of costing in which cost are ascertained per unit of a single product in a continuous manufacturing activity. Per unit cost is calculated by dividing total production cost by number of units produced. This method is also known as single costing.

Top 8 Methods of Costing – Explained!

• Job Costing: ADVERTISEMENTS:
• Contract Costing: Contract costing does not in principle differ from job costing.
• Batch Costing: ADVERTISEMENTS:
• Process Costing: A process refers here to a stage of production.
• Operation Costing: ADVERTISEMENTS:
• Unit Costing:
• Operating Costing:
• Multiple Costing:

Job costing is an accounting tool that allows businesses to track costs by individual jobs. Job costing is calculated by accumulating the cost of labor, materials and overhead for a specific project.

Costing Method – The way that a final product’s total cost is calculated. Standard Cost – Manufacturers add up the costs of all the parts in a bill of materials, labor costs, and other costs incurred in the manufacturing process to come up with a final cost for each final product.

Who uses job costing? Examples include home builders who design specific houses for each customer and accumulate the costs separately for each job, and caterers who accumulate the costs of each banquet separately. Consulting, law, and public accounting firms use job costing to measure the costs of serving each client.

For example, the cost of materials varies with the number of units produced, and so is a variable cost. Costing can also include the assignment of fixed costs, which are those costs that stay the same, irrespective of the level of activity. Examples of fixed costs are rent, insurance, and property taxes.

Coca-Cola uses process costing to track product and customer costs. It can work out direct materials costs, direct labor, and factory overhead costs to products as well as customers in three major processes: (1) concentrate and syrup manufacturing, (2) blending, and (3) packaging, Blocher, et al., (2008).

Cost denotes the amount of money that a company spends on the creation or production of goods or services. This is the amount that the seller charges for a product, and it includes both the production cost and the mark-up, which is added by the seller in order to make a profit.

Elements of Cost

• Direct Material. It represents the raw material or goods necessary to produce or manufacture a product.
• Indirect Material. It refers to the material which we require to produce a product but is not directly identifiable.
• Direct Labour.
• Indirect Labour.
• Direct Expenses.
• Indirect Expenses.
• Overhead.
• Factory Overhead.

The three general categories of costs included in manufacturing processes are direct materials, direct labor, and overhead.

The key elements included in the production costs are as follows:

• Purchase of raw machinery.
• Installation of plant and machinery.
• Wages of labor.
• Building rent.
• Interest on capital.
• Wear and tear of building and machinery.
• Advertisement expenses.
• Payment of taxes.

Ordering, holding, and shortage costs make up the three main categories of inventory-related costs.

The total cost of a product includes the following five elements:

• Direct Material:
• Direct Labour:
• Direct Expenses:
• Factory Overhead:
• Selling and Distribution and Administrative Overheads:

The elements are: 1. Materials 2. Labour 3. Production Overhead.

The three elements of manufacturing costs are material, labour, and manufacturing overhead. Material A distinction is made between direct materials and indirect materials when the product is the relevant cost objective. Direct materials are those which can be logically and readily identified with the product.

The total of the manufacturing costs per unit equals the product cost per unit. The material, labor, and overhead are the manufacturing costs from the list. The first step is to calculate the total manufacturing costs. Manufacturing costs include the direct material, direct labor, variable overhead, and fixed overhead.