Costing Statements for Selling Price (Cambridge (CIE) AS Accounting): Revision Note
Exam code: 9706
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
Alternatively, you can find the total selling price for one unit and then multiply by the number of units
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 |
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 |
Total selling price is $128 250
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