Costing Statements for Selling Price (Cambridge International AS Accounting)

Costing statements using absorption costing

Spec point — how to apply traditional costing methods to prepare costing statements using unit, job and batch costing principles in both manufacturing and service businesses as applicable how to prepare costing and profit statements using absorption costing

Costing statements using absorption costing

What are cost statements?

• Costing statements show the total cost of a product, job, batch, or service
• It shows the detailed elements of cost

How do I prepare a costing statement using absorption costing?

• STEP1 Calculate the prime cost

  • Start with direct materials
  • Add direct labour
  • Add other direct costs

• STEP 2 Calculate the total cost

  • Start with the prime cost
  • Add indirect costs/overheads

• STEP 3 Calculate the markup

  • Start with total cost
  • Multiply this by the provided **percentage markup **

• STEP 4 Calculate the** total selling price**

  • Start with the cost
  • Add markup

Example of a cost statement

• Alternatively, you can find the total selling price for one unit and then multiply by the number of units

Example of a cost statement including the selling price for one unit

Worked Example A factory manufactures 500 tables.

The data below is given per unit:

Direct materials	10kg at $12.50 per kg
Direct labour
Assembling department	5 hours at $7.50 per hour
Polishing department	3 hours at $4.25 per hour
Machine hours
Assembling department	1.5 hours
Polishing department	3 hours
Overhead absorption rates	$5.00 per labour hour $4.50 per machine hour

Markup is set at 20%.

Prepare a costing statement to calculate the total selling price.

Answer:

Use labour hours for assembling department overheads

Use machine hours for polishing department overheads

		$
Direct materials	10 × $12.50 × 500	62 500
Direct labour
Assembling department	5 × $7.50 × 500	18 750
Polishing department	3 × $4.25 × 500	6 375
Overheads
Assembling department	5 × $5.00 × 500	12 500
Polishing department	3 × $4.50 × 500	6 750
Total cost		106 875
Markup	20% × $106 875	21 375
Total selling price		128 250

Final answer: Total selling price is $128 250

Alternative layout

		$
Direct materials	10 × $12.50	125.00
Direct labour
Assembling department	5 × $7.50	37.50
Polishing department	3 × $4.25	12.75
Overheads
Assembling department	5 × $5.00	25.00
Polishing department	3 × $4.50	13.50
Cost per unit		213.75
Markup	20% × $213.75	42.75
Unit selling price		256.50
Total selling price	$256.50 × 500	126 750

Final answer: Total selling price is $128 250