Page 28 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 2: Unit and Output Costing

2.1 Cost Sheet – Defi nition Notes

“It is a statement of costs incurred at every level of manufacturing a product or service.”

“It is a statement prepared to depict the output of a particular accounting period alongwith break
up of costs.”

Did u know? How to fi nd a total cost of the product or service?
To find the total cost of the product or service, the costs incurred are grouped under various

categories.
Unit or output costing is one of the important objectives of Cost Accounting. For this, it is
essential to classify cost into certain constituents or categories. These are known as elements of
cost. Elements of cost are:
1. Direct Material
2. Direct Labour
3. Direct Expenses, and

4. Factory Overheads

5. Office and Administrative Overheads
6. Selling and Distribution Overheads

!
Caution To fi nd out the unit cost of the product, the statement of cost plays a pivotal role
in determining the cost of production, cost of goods sold, cost of sales and selling price of
the product at every stage.

During the preliminary stage of preparing the cost statement of the product, there are two
things to be borne in our mind at the moment of classifi cation.
1. Direct cost classifi cation

2. Indirect cost classifi cation
Self Assessment

Fill in the blanks:
1. Cost sheet is a statement which is prepared periodically to provide detailed cost of a cost
unit or ...................... .

2. Unit or output costing is one of the important objectives of .......................

2.2 Direct Cost Classifi cation

Under this classification, the direct costs of the product or service are added together to know the
volume of total direct cost. The total volume of direct cost is known as “Prime Cost.”
Direct Materials + Direct Labour + Direct Expenses = Prime cost

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