Simple process costing
For a single product made in bulk without stock, simply divide total cost by output.
Worked example
A waterworks (one product, no stock) had total costs of £148,280.00 for 4,000 m³ in the year. Work out the cost per m³ and the price with a 9% profit mark-up.
Worked solution
- 1.Simple process costing: cost per unit = £148,280.00 / 4,000 = £37.07
- 2.Price = £37.07 × 1.09 = £40.41
Typical mistake: Working out the mark-up on the price instead of on cost.
Your turn
Three problems of exactly this type, each time with new numbers. Amounts with or without thousands separators.
Task
A waterworks (one product, no stock) had total costs of £1,491,270.00 for 33,000 m³ in the year. Work out the cost per m³ and the price with a 11% profit mark-up.
Cost per m³ in £
Price per m³ in £
Amounts like 12,500 or 12500.50; percentages as a number (12.5). Round to the penny or 2 decimal places.
Formulas for this topic
- Simple: cost per unit = total cost / output
- Two-stage: production cost / units made + admin and selling / units sold
- Equivalence numbers: equivalent units = Σ output × factor; cost per unit = cost per equivalent unit × factor
Typical mistake: Working out the mark-up on the price instead of on cost.
Frequently asked questions
What is the typical mistake in "Simple process costing"?
Working out the mark-up on the price instead of on cost.
When is two-stage costing needed?
When units made and units sold differ, i.e. stock is built up or run down.