Introduction 

The method which is used to ascertain the cost of a product or service is called costing.The method of costing differs from industry to industry.The unit is output costing is suitable for industries, where goods are manufactured in units and are identical in nature. Unit costing is a method of costing under which cost of a single product,which is produced by a continuous manufacturing process, is ascertained or determined.

Meaning of Unit or Output Costing

Unit or output costing is a method of costing,which is applied in those undertakings where units of output are identical and the cost units are physical and natural.It is ideally uses in those concerns, which produce only one product or two or more grades of one product in large scale. This method is used in industries like mines, breweries, cement, paper mills etc.

The basic concepts of this method os costing is to ascertain the cost per unit of output. The cost per unit is ascertained by dividing the total cost incurred on the production of a product by the number of units of that product.It can be expressed as:

Cost per unit or output costing=(Total cost or product)/Total quantity                                                  or number of units produced 

This costing method is also known as single costing methods as the process of production includes only one stage or single operation. 

Importance of Unit or Output Costing

1. Ascertain of cost : It helps in ascertainment of total cost and cost per unit at different stages of production.

2. Controlling costs: It helps in controlling and reducing costs since time to time cost are compared from previous period and leakages and wastages are checked.

3. Fixation of selling price: It provides data about the cost of a job or product and on the basis of such data appropriate selling price of the product can be fixed.

4. Submitting tenders: It also helps the business in ascertainment the tender price by providing information about estimated cost on the basis of past data.

5. Formulating production policy: It cats as a guide to the manufacturer and helps in formulating a profitable production policy.

Limitations of Unit or Output Costing

1. Limitations of historical costs: Unit or Output Costing, being basically of historical nature, suffers from all the defects of historical costing.

2. Useful only for homogeneous products: This costing method can be used only for homogeneous products and not for heterogeneous products.

3. No sufficient for cost control: This costing system simply determines total cost and per unit cost of the product which is by itself not sufficient for cost control.

4. Arithmetic accuracy cannot be checked: Under this method, generally a statement is prepared which does not form a part of double entry system. Therefore arithmetic accuracy cannot be checked under this method.

Methods of unit or output costing

Unit or output costing is used to determine the cost per unit of production in a specific period of time. For this method,the following methods are used:

@ Cost sheet

@ Manufacturing Account