All About Costing

1. Input Units
The units that are introduced at the stare of the process in the form of raw material. {Here for example 400 units.}

2. Actual Output
The output that is actually achieved after the production. Normally in questions it gives a percentage of output that would be achieved after process.

3.Normal Loss
Normal loss is that which is uncontrollable it must be occurred during the production. For example the shrinking of units in some process is normal loss.

Number of methods for calculating the loss. It is always calculated on the input.
{Here it would be 40 units (10% of input ⇒ 400 units × 10% = 40 units)}

4. Normal Output
The output that we obtained after the process under normal conditions.
[Normal Output = Gross Input − Normal Loss]
{Here it would be 360 units (400 units − 40 units)}

5. Abnormal Loss
The loss that is occurred due to inefficiency. This is controllable loss.

Method of calculating of Abnormal Loss
["Abnormal Loss" = "Normal Output" − "Actual Output"]
{Here, Normal Output (360 units) = Actual Output (360 units),
⇒ There is no abnormal loss.}



6. Abnormal Gain
When the actual output is greater than the normal output then we say it is Abnormal Gain.
Let us suppose Normal Output is 360 units and Actual Output is 370 units.

[Abnormal Gain= Actual Output − Normal Output ]
{Here, Normal Output (360 units) = Actual Output (370 units) = 10 units
⇒ There is abnormal gain of 10 units}

7. Total Cost
The cost that is in total occurred on the process.
For example we consider the previous example we take process I total cost
                                    Material + Labor + Production Overhead
                                     Rs.2,700 + Rs.  2,200 + Rs. 7,200
                                               Total Cost = Rs. 12,100

8. Normal Loss Realization Value
The value which we realize on sale of lost units we can say scrap units.

This will be calculated on market value or estimated realizable value.

[Normal Loss Realizable Value = Normal Loss In Units × Market Rate per unit]
{Here it is Rs, 120 (= 40 units × Rs.3/unit)}

The Normal Loss may be have no market value if the loss in the shape of shrinking or weight loss e.g decrease the weight of units during production. Normally the defective units have scrap value.

9. Regular Cost
The cost that must have to be incurred during the production under standard conditions.

It is equal to the total cost reduced by the normal loss realisation.

[Regular Cost = Total Cost − Normal Loss Realisation]
{Here it is Rs, 11,980 (= Rs. 12,100 − Rs. 120)}

10. Production Cost (Per Unit)
Per unit cost is very important part that we used in calculation the total output cost and normal and abnormal loss cost
Production Cost (Per Unit) = Total Cost/Total Output
                                          = Rs. 11,980/360 units
                                          = Rs. 33.27 Per unit