UNIT or OUTPUT Costing GRADE 12 ACCOUNTS HARD QUESTION FOR NEB

Mastering Unit | Output Costing: The Ultimate Challenge

Unit or Output Costing is the backbone of manufacturing accounting. It is used to determine the total cost and the per-unit cost of a product. In the board exams, the most challenging questions combine a historical Cost Sheet with a forward-looking Tender Sheet (Quotation), testing your ability to handle opening/closing stock in units, scrap value, and fluctuating overhead percentages.

Expert Tips | Tricks for Advanced Costing Problems

Trick 1: The Closing Stock Valuation Rule: If the value of closing stock of finished goods is missing, ALWAYS value it at the Cost of Production (COP) per unit of the current year.
Formula: (Total COP / Units Produced) × Closing Stock Units.

Trick 2: Finding Missing Sales Units: Use the unit reconciliation formula:
Opening Stock Units + Units Produced - Closing Stock Units = Units Sold. You will need this to calculate Selling | Distribution Overheads if they are given "per unit sold".

Trick 3: The Tender Overhead Link: Unless stated otherwise in a quotation problem:
- Factory Overheads are applied as a percentage of Direct Wages.
- Office | Admin Overheads are applied as a percentage of Works Cost.

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The "Very Very Hard" Question: FEEN Manufacturing Ltd.

Focus Edge Education Network (FEEN) Manufacturing Ltd. provides the following details for the year ended 2025 regarding the production of 10,000 units of a specialized product:

Particulars	Amount (Rs.)
Stock of Raw Materials (Opening)	50,000
Purchases of Raw Materials	400,000
Stock of Raw Materials (Closing)	40,000
Direct Wages	200,000
Chargeable (Direct) Expenses	50,000
Factory Overheads	60% of Direct Wages
Work in Progress (Opening)	20,000
Work in Progress (Closing)	30,000
Sale of Factory Scrap	10,000
Office | Administrative Overheads	20% of Works Cost
Stock of Finished Goods (Opening: 1,000 units)	75,000
Stock of Finished Goods (Closing: 2,000 units)	? (To be valued)
Selling | Distribution Overheads	Rs. 5 per unit sold

Profit Margin: The company charges a profit of 20% on Sales.

Tender | Quotation Details:
The company receives a new order to supply 2,500 units. Management estimates the following changes for this new order:

• Cost of Raw Materials per unit will increase by 15%.
• Direct Labor cost per unit will increase by 10%.
• Direct Expenses per unit will remain constant.
• Factory overheads and Office overheads will be absorbed at the same percentages as the previous year.
• Selling | Distribution overheads per unit will remain unchanged.
• The company expects a profit of 25% on Total Cost for this tender.

Required:
a) Statement of Cost (Cost Sheet) showing total profit and sales.
b) Statement of Tender / Quotation showing the selling price for the 2,500 units.

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Step-by-Step Solution

Working Note 1: Valuation of Closing Stock of Finished Goods

To value the 2,000 units of closing stock, we first need the Cost of Production (COP) for the 10,000 units produced. (We will see in the Cost Sheet that total COP = Rs. 912,000).

COP per unit = 912,000 / 10,000 units = Rs. 91.20 per unit.

Value of Closing Stock = 2,000 units × Rs. 91.20 = Rs. 182,400.

Working Note 2: Units Sold Calculation

Units Sold = Opening Units (1,000) + Units Produced (10,000) - Closing Units (2,000) = 9,000 units sold.

Part A: Cost Sheet for FEEN Manufacturing Ltd. (Output: 10,000 units)

Particulars	Total Cost (Rs.)
Opening Stock of Raw Materials	50,000
Add: Purchases of Raw Materials	400,000
Less: Closing Stock of Raw Materials	(40,000)
Raw Materials Consumed	410,000
Add: Direct Wages	200,000
Add: Chargeable (Direct) Expenses	50,000
Prime Cost	660,000
Add: Factory Overheads (60% of Direct Wages: 200,000 * 60%)	120,000
Gross Factory Cost	780,000
Add: Opening Work in Progress	20,000
Less: Closing Work in Progress	(30,000)
Less: Sale of Factory Scrap	(10,000)
Net Factory Cost / Works Cost	760,000
Add: Office | Administrative Overheads (20% of Works Cost: 760,000 * 20%)	152,000
Cost of Production (for 10,000 units)	912,000
Add: Opening Stock of Finished Goods (1,000 units)	75,000
Less: Closing Stock of Finished Goods (2,000 units @ Rs. 91.20)	(182,400)
Cost of Goods Sold (COGS for 9,000 units)	804,600
Add: Selling | Distribution Overheads (9,000 units sold × Rs. 5)	45,000
Total Cost / Cost of Sales	849,600
Add: Profit (20% on Sales = 25% on Total Cost) -> 849,600 * 25%	212,400
Sales Revenue	1,062,000

Working Note 3: Per Unit Adjustments for Tender (2,500 units)

1. Raw Material per unit: Old Cost = 410,000 / 10,000 = Rs. 41.
New Cost (+15%) = 41 × 1.15 = Rs. 47.15 per unit.
Tender Material Cost = 47.15 × 2,500 = Rs. 117,875.

2. Direct Wages per unit: Old Cost = 200,000 / 10,000 = Rs. 20.
New Cost (+10%) = 20 × 1.10 = Rs. 22.00 per unit.
Tender Wage Cost = 22 × 2,500 = Rs. 55,000.

3. Direct Expenses per unit: Old Cost = 50,000 / 10,000 = Rs. 5.
Tender Direct Expense = 5 × 2,500 = Rs. 12,500.

Part B: Statement of Tender / Quotation (For 2,500 units)

Particulars	Amount (Rs.)
Cost of Raw Materials (2,500 units @ Rs. 47.15)	117,875
Direct Wages (2,500 units @ Rs. 22.00)	55,000
Chargeable Expenses (2,500 units @ Rs. 5.00)	12,500
Prime Cost	185,375
Add: Factory Overheads (60% of Direct Wages: 55,000 * 60%)	33,000
Works Cost	218,375
Add: Office | Admin Overheads (20% of Works Cost: 218,375 * 20%)	43,675
Cost of Production	262,050
Add: Selling | Distribution Overheads (2,500 units × Rs. 5)	12,500
Total Cost of Tender	274,550
Add: Profit (25% on Total Cost) -> 274,550 * 25%	68,637.50
Tender Selling Price / Quotation Price	343,187.50

By mastering unit conversions, stock valuations, and accurately linking overhead percentages from the past year to future projections, you are now fully equipped to conquer any advanced costing problem!