b'What form of costing to use? 1.20 Local authorities are free to decide what methodology to adopt. They may find it helpful to draw on existing and familiar principles as set out in the CIPFA Service Reporting Code of Practice for Local Authorities (the Code) for determining full cost. Local authorities may wish to consider adding to total cost an appropriate contribution for Corporate and Democratic Core (CDC) and Non-Distributed Costs (NDC) as those terms are defined in the Code, as part of the costs of provision. The Code offers guidance on practice which authorities might adopt and is amended from time to time to take account of changes in requirements. It is important that the approach used recognises the components of cost that are incurred in the provision of the service, but there can be dramatic differences in respect of what is cost. The lowest costing approach will be marginal costing. In this approach, only the extra cost incurred in providing the service would be captured. The marginal cost varies according to how many more or fewer units an entity wishes to produce. Increasing production may increase or decrease the marginal cost, because the marginal cost includes all costs such as labour, materials, and the cost of infrastructure. For example, if a local authoritys legal department decides to offer service to charities and increases its work base, the number of rechargeable hours will increase and it may need more staff resources and more office services, but the office costs including maintenance remain the same and are spread out over a greater number of rechargeable hours. This may reduce the marginal cost. There are several ways of absorbing these indirect costs. For example, they could be absorbed according to the floor space that each activity takes up, or according to the revenue of each line, or by some other method. Using such an approach, the direct costs can then be divided up into the various production lines and then into the number of units coming off the line. Example 1.21 A factory produces 10,000 units of work of a specific type each day.The direct cost of producing each unit is calculated at 20 pence (to cover raw material, and direct labour costs).In addition, it is calculated that each product line should absorb 1,000 of indirect costs per day (the method of absorbing the costs having been calculated in proportion to the sales revenue of each product).This means that 10 pence of overhead cost is allocated to each unit of production. Total cost per unit is therefore:20p direct cost plus 10p indirect cost = 30p. 24'