Some Other Problems of accounting statement in Unit or Output Costing
The methods to solve some specific kinds of problem of unit or output costing are as given below.
(1) Scrap or residual- This is also known as wast-
age. When material is used in the production of goods, then sometimes, some of the material is left over as scrap which cannot be used for production, but which can be sold as scrap or waste. The amount received through the sale of scrap should be deducted from the amount of materials consumed. That is
Opening Stock of Raw Materials
+Purchases of Raw Materials
-Closing Stock of Raw Materials
Scrap value (if any)
Cost of Materials Consumed
(2) Haulage or carriage expenses- While purchasing material for production, expenses related to transporting of goods, such as-haulage or carriage expenses, occur. These transport expenses are known as carriage inward expenses. If these carriage inward expenses are related to direct material then it should be included in material consumed. That is
Opening Stock of Raw Materials
+Purchases of Raw Materials
+Carriage inward
-Closing Stock of Raw Materials
Materials Consumed
If the carriage inward expenses are related to indirect material then they should be included in factory expenses or work expenses.
When a commodity is sold, and the responsibility of delivering the commodity or goods is that of the seller, then the transport expenses are known as carriage outward expenses. These expenses should be included in selling and distribution expenses.
When only haulage or carriage expenses are given and if it is not clearly stated whether these expenses are inward or outward carriage expenses, then these should be included in carriage inward expenses.
(3) Selling expenses- The expenses incurred for the sale of the produced commodity are known as selling expenses. There are indirect expenses. These expenses do not increase or decrease according to the quantity of goods produced, but they increase or decrease according to the market conditions. Some types of goods possess a Ready Market. Such goods are sold as soon as they are produced and brought into the market, whereas some goods do not have a ready market and hence a lot of money has to be spent on the advertisements etc. so that their sales can be increased. Sometimes, the agents have to be given commission. The commission expenses etc. depend on the amount of sales and not on the production cost or quantity of production. Therefore, it is not proper to include the selling expenses in the cost of production, but it should be included in the cost of goods sold.
(4) Distribution expenses- Distribution expenses are those expenses that are incurred to complete the selling process and make the produced commodity distributable. For example-packing, casting, insurance etc., are included in distribution expenses. As distribution expenses, these expensesncome in the category of indirect expenses and these do not increase or decrease according to the proportion or quantity produced but increase or decrease according to the proportion of goods sold.
(5) Division of Selling and Distribution expenses-
Selling and distribution expenses can be mainly of two types
(i) Fixed expenses- These are those expenses which are not affected by an increase or decrease in the quantity of goods sold. Whether the sales are more or less, these expenses remain fixed, such as-the rent of the showroom, salary of sales manager etc.
(ii) Flexible or Variable expenses- These expensesnIncrease or decrease according to the quantity of goods sold. If the sales are more, these expenses win increase and if the sales become less, then the expenses will decrease, such as-commission of agents, sales tax etc.
The selling and distribution expenses which are fixednin nature are included in the total cost of production of the commodity. Contrary to this, the selling and distribution expenses that are flexible or variable in nature are included in a fixed proportion of goods sold.
Sometimes, direct expenses of selling and distribution are given, but fixed or indirect expenses are not given, so to calculate fixed expenses, the sales in a given period and the percentage of the fixed selling and distribution expenses on sale, should be calculated. The fixed expenses should be then calculated on the basis of this percentage and should be shown alongwith the flexible or variable expenses, and the final cost must be found out.
(6) Net profit and Selling and Distribution Expenses-In order to calculate net profit, selling and distribution expenses must be deducted or subtracted from gross profit. Gross profit is found out by subtracting the cost of sales amount from sales.
(7) Division of factory expenses and office expenses When more than one commodity is produced in a factory, but the amounts of factory expenses and office expenses for different commodities are not given separately, that is, they are given together, then the problem arises as to how much part of the amount given together as factory expense and office expense should be written, as the cost of the different commodities.
