Output Costing

Output Costing – Definition

Output costing is an analysis of the different elements of expenditure so as to find out the factory cost, office cost and total cost per unit. The per-unit cost is arrived at by dividing the total expenditure by the quantity produced.

Output Costing – Explanation

This costing system is employed in industries wherein (i) the production is uniform and a continued affair, (ii) the units of production are identical; and (iii) the cost units are physical and natural.


Here the cost sheet is prepared with a view to throwing light on every aspect of cost. This is why comparative figures of a preceding period are also made available in the cost statement so as to enable the management in assessing the progress of the business.

In place of or in addition to preceding period figures, the budgeted figures may also be made available so as to enable the management to know the targeted figures and take decisions accordingly.

Examples

(1). If the cost price of a product is $10,000 and profit is expected to be realized at 10% of the cost, then what will be the profit? How will you arrive at the figure?

Solution:

Take cost price as $100.

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The profit on cost is 10%. This means it is $10 on the cost of $100, as assumed. Therefore, the profit on cost of $ 10,000 will be:

$10,000 x (10/100) = $1,000

(2). If the cost price of a product is $10,000 and profit is expected to be realised at 10% on selling price, then what will be the profit? How will you arrive at the figure?

Solution:

Take the selling price as $100.

Cost price will, then, naturally be 10% less, that is $100 – 10%, i.e. $10 or $90. Now profit of $10 is on a cost of $90. The profit on cost price of $10,000 will, therefore, be:

$10,000 x (10/90) = $1,111.11 or 1,111.

(3). If the selling price of a particular product is $10,000 and profit is 10% on cost, then what will be the profit? How will you arrive at the figure?

Solution:

Take cost price as $100.

Selling price will, then, naturally be 10% more, that is $100 + 10%, i.e $110. Now the profit on a selling price of $110 is $10. The profit on selling price of $10,000 will, therefore, b e:

$10,000 x (10/100) = $909 (approximately)

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