How do you work out the cost of a one-off job or of a unit flowing through a continuous production process?
Calculate the cost of output using job costing for one-off or batch work and process costing for continuous production, including the treatment of equivalent units, normal loss, abnormal loss and abnormal gain.
A focused answer to the SQA Advanced Higher Accounting costing methods, covering job and batch costing for one-off work, process costing for continuous production, equivalent units for closing work in progress, and the treatment of normal loss, abnormal loss and abnormal gain.
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What this dot point is asking
The SQA wants you to cost output by the method that fits the production type: job costing when work is one-off or in distinct batches, and process costing when units flow continuously through one or more stages. Process costing brings in the harder ideas of equivalent units and the treatment of losses, which are reliable sources of marks.
Job costing
Job costing suits work that is distinct and identifiable: a printer producing a specific order, a garage repairing one car, a builder on a single contract.
The skill is assembling the three cost elements correctly and then applying the profit rule as stated. A common distinction worth getting right is mark-up (profit as a percentage of cost) versus margin (profit as a percentage of selling price); the question wording tells you which.
Process costing and equivalent units
Continuous processes (refining, brewing, chemicals, food) cannot identify individual jobs, so cost is averaged over output. The complication is part-finished units.
The method is: build a statement of equivalent units for completed output and for closing work in progress, total the equivalent units for each cost element, divide each cost by its equivalent units to get a cost per equivalent unit, and then value completed output and closing work in progress.
Normal loss, abnormal loss and abnormal gain
Most processes lose some input to evaporation, scrap or rejects, and the SQA distinguishes three cases.
The single principle that keeps this straight is that normal loss is absorbed by good units, while abnormal loss and gain are isolated so that the cost of good output is not distorted by inefficiency or unexpected efficiency.
Why this matters later
Job and process costing produce the unit cost that flows into the rest of the management accounting area. That unit cost is the basis for marginal and absorption costing comparisons, it is what standard costing measures actual performance against, and it feeds the decision-making topic when you weigh whether to accept an order. Choosing the right costing method and handling losses cleanly is the foundation the later topics assume.
Try this
Q1. A job costs GBP 4,000 in total and profit is added at 25% of cost. State the price. [2 marks]
- Cue. .
Q2. A process inputs 10,000 units with a normal loss of 8% and no scrap value, at a total cost of GBP 92,000. Find the cost per good unit. [3 marks]
- Cue. Expected good output ; cost per unit .
Exam-style practice questions
Practice questions written in the style of SQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AH style: job cost6 marksA job uses GBP 1,200 of direct materials and 40 direct labour hours at GBP 15 per hour. Overheads are absorbed at GBP 8 per labour hour. Profit is added at 25% of total cost. Calculate the price quoted for the job.Show worked answer →
Direct labour is and overheads are (2 marks).
Total cost is materials plus labour plus overhead: (2 marks).
Profit is , so the price quoted is (2 marks). Markers reward correct absorption of overhead on labour hours, a correct total cost, and the mark-up applied to cost rather than price.
AH style: process loss7 marksA process starts 5,000 units costing GBP 40,000 in total. Normal loss is 10% of input and has no scrap value. There is no work in progress. 4,400 good units are completed. Calculate the cost per good unit and the value of the abnormal loss.Show worked answer →
Normal loss is units, so expected good output is units (2 marks).
Cost per good unit spreads total cost over expected good output: per unit (to the nearest penny) (2 marks).
Actual good output is 4,400, so the abnormal loss is units, valued at the cost per good unit: (3 marks). Markers reward deducting normal loss from the cost base, the per-unit rate, and valuing abnormal loss at that rate.
Related dot points
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Sources & how we know this
- SQA Advanced Higher Accounting Course Specification — SQA (2025)