Process Costinfg - Teju

A STUDY ON PROCESS COSTING IN MANUFACTURING INDUSTRY-WITH SPECIAL
REFERENCE TO NEHAL MANUFACTURING AND TRADING COMPANY, BANGALORE.
CHAPTER-1
INTRODUCTION
1.1 INTRODUCTION OF COST
Even a single rupee spent will have a greater count in every action of human being. Nobody will
spend unless knowing what they can yield from their spending. Human being always tends
towards the benefits, before going to invest anything him just think of benefits only. Observe
human life – individual and collective, economic, and non-economic, professional and business
across the nation. One thing is common – all decisions are based on cost benefit comparisons.
Cost management identifies, collects, measures, classifies and reports information that is useful
to managers in cost planning, controlling and decision for internal users that should be noted that
cost management and financial accounting information system are part of the total accounting
information system.
Before going to the topic it is necessary to know about the cost and its elements and methods.
1.2 COST
Cost is a very important element in production of a product, which helps in fixing product price
and earning a sufficient profit. The term cost, is having a different meaning in different terms and
its scope as broad and general.
MEANING AND DEFINITION
Cost is amount of expenditure incurred for producing a product.
According to Cambridge International Dictionary of English, cost means “the amount of money
needed to buy, do or make something.”
According to CIMA, London defines “cost is the amount of expenditure (actual or national),
incurred to a given thing.”
THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 1

1.3 BASIC CONCEPTS OF COST
1. COSTING
The CIMA, London defines as “the techniques and processes of ascertaining cost.” The
technique refers to the principles, when are applied for ascertaining cost of products, job,
processing and services. These techniques may differ from industry to industry and changes
from time to time.
2. COST ACCOUNTING
Cost accounting is a task of collecting, summarizing and evaluating various alternative
course of action. It is a process of costs, which begins with the recording of income and
expenditure and ends with the preparation of periodical statements and reports for
ascertaining and controlling of cost.
Objectives:
 Ascertainment of cost.
 Determination of selling price.
 Cost control and cost reduction.
 Decision making.
3. COST ACCOUNTANCY
It refers to the application of costing and cost accounting principles, methods and techniques
to the science, art and practices of cost control and ascertainment of profitability. It is also
includes presentation of information based on standards, therefore helps in managerial
decision making.
4. COST MANAGEMENT
It is the management planning and control system with primary objective of producing
quality of products and services at lower possible cost. It is a management of cost related

activities achieved by collecting, analysing, evaluating and reporting cost information used
for budgeting, forecasting and monitoring cost.
5. COST CONTROL
It is the process of regulating the action so, as to keep the elements of cost within the same
set of parameters. Cost Control is simply the prevention of waste in the production of a
product within the existing environment.
6. COST REDUCTION
It is a process used by companies to reduce their cost and increase their profit without
affecting quality of product. Cost reduction to be achieved by using certain strategies like
bench marking, cost drivers analysis, reverse costing, design to cost, etc.
7. COST METHODS
The methods or types of costing refer to the methods and process employed for the
ascertainment of cost. The method of costing to be applied in a particular concern depending
upon the type and nature of manufacturing activity. Costing methods includes, Job costing,
Process costing, Operational costing, Transport costing, Unit costing, Batch costing, etc.
8. COSTING TECHNIQUES
Are those principles and techniques used by the industries for controlling of cost and cost
reduction in the production without affecting the quality of product or services.
Costing techniques are as follows,
 Standard costing.
 Marginal costing.
 Absorption costing.
 Uniform costing.
 Budgetary control.

1.4 ELEMENTS OF COST
Cost of production/manufacturing consists of various expenses incurred on

production/manufacturing of goods or services. These are the elements of cost which can be
divided into the three groups: Material, Labour and Expenses.
Elements of Cost
Material Labour Expenses
1. MATERIAL COST
To produce or manufacture material is required. For example to manufacture shirts cloth is

required and to produce flour wheat is required. All material which becomes an integral part of
finished product and which can be conveniently assigned to specific physical unit. It is also
described as raw material, etc. The substance from which the product is made is known as
material. Material is classified into two categories:
 Direct Material.
 Indirect Material.
a) Direct Material
Direct Material is that material which can be easily identified and related with specific
product, job and process. Timber is a raw material for making furniture, cloth for making
garments, sugarcane for making sugar, and Gold/silver for making jeweller, etc. are some
examples of direct material.
b) Indirect Material
Indirect Material is that material which cannot be easily and conveniently identified and
related with a particular product, job, process and activity. Consumable stores, oil and waste,

printing and stationary etc. are some examples of indirect material. Indirect materials are
used in the factory, the office, or the selling and distribution department.
2. LABOUR COST
Labour is the main factor of production. For conversion of raw material into finished goods,
human resource is needed, and such human resource is termed as labour. Labour cost is the main
element of cost in a product or service. Labour can be classified into two categories: Direct
Labour and Indirect Labour.
a) Direct Labour
Labour which takes active and direct part in the production of a commodity. Direct labour is
that labour which can be easily identified and related with specific product, job, process and
activity. Cost of wages paid to carpenter for making furniture, cost of a tailor in producing
readymade garments is examples of direct labour.
b) Indirect Labour
Indirect labour is that labour which cannot be easily identified and related with specific
product, job, process and activity. It includes all labour not directly engaged in converting
raw material into finished product. Indirect labour is used in the factory, the office, or the
selling and distribution department. Wages of store-keepers, salary of works manager, salary
of salesman, etc, are all examples of indirect labour cost.
3. EXPENSES
All cost incurred in the production of finished goods other than material cost and labour cost are
termed as expenses. Expenses are classified into two categories: Direct expenses and Indirect
expenses.
a) Direct Expenses
These are expenses which are directly, easily and wholly allocated to specific cost centre or
cost units. All direct cost other than direct material and direct labour are termed as direct
expenses. Direct expenses are also termed as chargeable expenses. Some examples of the

direct expenses are hiring of special machinery, cost of special designs, feed paid to
architects, surveyors and other consultants, inward carriage and freight charges, etc.
b) Indirect Expenses
These expenses cannot be directly, easily and wholly allocated to specific cost centre or cost
units. All indirect costs other than indirect material and indirect labour are termed as indirect
expenses. Thus,
Indirect Expenses = Indirect Cost – Indirect Material – Indirect Labour
Indirect Expenses are treated as part of overheads. Rent, rates and taxes building, repair,
insurance and depreciation on fixed assets, etc, are some examples of indirect expenses.
PRIME COST
This is the aggregate of Direct Material cost, Direct Labour cost and Direct expenses.
Prime Cost = Direct Material + Direct Labour + Direct Expenses
OVERHEADS
The term overhead has a wider meaning than the term indirect expenses. Overheads include the
cost of indirect material, indirect labour and indirect expenses. This is the aggregate sum of
indirect material, indirect labour and indirect expenses.
Overhead = Indirect Material + Indirect Labour – Indirect Expenses
Overheads are classified into following three categories:
 Factory/works/production overheads.
 Office and administration overheads.
 Selling and distribution overheads.

1.5 METHODS OF COSTING
The methods or types of costing refer to the techniques and Process employed for the
ascertainment of cost. Several methods have been designed to suit the needs of different
industries. The method of costing to be applied in a particular concern depending upon the type
and nature of manufacturing activity.
The following are the basic general methods of costing, for ascertainment of cost. They are,
1) Job Costing
Under this method, cost is collected and accumulated for each job, work order or project
separately. Each job can be separately identified, so it becomes essential to analyze the cost
according to each job. Job costing is applied to the printing work, machine repair,
engineering work.
2) Contract Costing
In this method each contract is a cost unit and an account is open for each contract in the
books of the contractor to ascertain profit and losses. Contracts are generally on large size
taking more than one year to complete. This method of costing is used by builders, civil
engineering contract, constructional and mechanical engineering firm, etc.
3) Batch Costing
A batch may represent a number of small orders passed through the factory in batch. Each
batch is treated as a unit of cost and separately coasted. The cost per unit is determined by
dividing the cost as each batch by the number of units produced in the batch. The method id
used by the biscuits manufacturers, garments, spare parts and component manufacturers.
4) Operation Costing
It is suitable to industries where mass or repetitive production is carried out or where the
goods have to stock in semi-finished stage, to enable the execution of special orders, or for
the convenient use in later operations. In this method, the cost unit is an operation. It is used
in cycle manufacturing, automobiles units, etc.

5) Single, output or unit costing
This is also known as single or output costing. This method is suitable for industries where
the manufacture is continuous and units are identical. This method is applied in industries
like mines, quarries, cement works, brick works, etc. In all these industries there is natural or
standard unit of cost.
6) Composite or multiple costing
This method is used in those industries where the nature of product is complex such as motor
cars, in such cases cost are accumulated for different component making final product.
7) Operating Costing
When any company provides the services instead of production of goods, this method of
costing is used. For examples, transport carries, electricity distributing company, municipal
committee, hospitals and hotels.
8) Process Costing
A process refers here to a stage of production. If a product passes through different stages,
each distinct and well defined, then in order to ascertain the cost at each stage or process, the
process costing is used. Under this method, a separate process account is prepared and all
incurred in that process are charged. Normally the finished product of one process becomes
the raw material of the subsequent process and a final product is obtained in the last process.
As the products are manufactured in continuous process, this is also known as continuous
costing.
1.6 PROCESS COSTING
Industries which are engaged in the manufacture of products which involves continuous
operation or process are known as process industries. These industries have their special
characteristics features. The costing system should be designed bearing in mind the salient
features.

Process costing represents a type of cost procedure for continuous or mass production
industries. In such industries output consisted like units each units being processed in the
same manner. Therefore, it is assumed that the same amount of Materials, Labour and
Overheads is chargeable to each unit processed. The cost of a unit at the end of any
manufacturing process can be easily determined provided cost are accumulated on a process
basis and a record of units is available.
Process costing is adopted where production flows from one process or department to
another till it is finally complete. It is probably most widely used method of cost
ascertainment. It is used in mass production industries producing standard products. In such
industries, goods produced are identical and all factory process is standardized, goods are
produced without waiting for any instruction or orders from customers and are put into
warehouse for sales, raw materials move down the particular sequences and cost are
compiled for each process or department by preparing a separate account for each process.
1.6.1MEANING OF PROCESS COSTING
Process costing is a type of operation costing which is used to ascertain the cost of a product
at each process or stages of manufacture.
In other words, process costing is a method of costing under which all costs accumulated for
each stages of production or process, and the cost per unit of product is ascertained at each
stages of production by dividing the coat of each process by the normal output of that
process.
1.6.2DEFINITIONS OF PROCESS COSTING
Chartered Institute of Management Accounts, London defines process costing as “The

costing methods applicable where goods or services results from sequences of continuous or
repetitive operation or processes. Cost is averaged over the units produced during the
period”.
According to L.K. Anthony, “process costing is that form of operations costing which applies
where standardized goods are produced”.

1.6.3 CHARACTERISTICS (OR) FEATURES OF PROCESS COSTING
The distinctive features of process costing are as follows;
 The production is continuous and the end product is the result of a sequence of
process.
 The production is homogeneous and the units produced are identical and
standardized.
 The sequence of operations for processing the product is specific and predetermined.
 The output of the previous process is transferred as an input to the next process.
 Some losses or gains are generally found in the process.
 Since the production is continuous in nature, some closing work in progress is
generally found.
 The process cost centre is clearly defined and all costs centres are accumulated.
 Both direct and indirect costs are accumulated in each process.
 Costs are accumulated process wise.
 Processing of a raw materials may given raised to the production of several products,
such products are called joint products or by products.
1.6.4 THE IMPORTANCE OF PROCESS COSTING
Costing is an important process that many companies engage in to keep track of where their
money is being spent in the production and distribution processes. Understanding these costs
is the first step in being able to control them.
is very important that a company chooses the appropriate type of costing system for their
product type and industry. One type of costing system that is used in certain industries is
process costing that varies from other types of costing (such as job costing) in some ways. In
process costing unit costs are more like averages, the process-costing system requires less
book keeping than does a job-order costing system. Thus, some companies often prefer to use
the process-costing system.
Process costing is very important in mass production industries producing standard products.

It helps those industries for ascertainment of cost, control of cost, avoided wastages in the
process, fixing the price of a product.
1.6.5 WHEN PROCESS COSTING IS APPLIED?
Process costing is appropriate for companies that produce a continuous mass of like units
through series of operations or process. Also, when one order does not affect the production
process and a standardization of the process and product exists. However, if there are significant
differences among the costs of various products, a process costing system would not provide
adequate product-cost information. Costing is generally used in such industries such as
petroleum, coal mining, chemicals, textiles, paper, plastic, glass, food, banks, courier, cement,
and soap etc.
REASONS FOR USE
Process costing is applied by the industries for the following purposes or reasons they are,
 Companies need to allocate total product costs to units of product.

 A company may manufacture thousands or millions of units of product in a given period
of time.
 Products are manufactured in large quantities, but products may be sold in small
quantities, sometimes one at a time (automobiles, loaves of bread), a dozen or two at a
time (eggs, cookies), etc.
 Products costs must be transferred from Finished Goods to Cost of Goods Sold as sales
are made. This requires a correct and accurate accounting of product costs per unit, to
have a proper matching of product costs against related sales revenue.
 Managers need to maintain cost control over the manufacturing process. Process costing
provides managers with feedback that can be used to compare similar product costs from
one month to the next, keeping costs in line with projected manufacturing budgets.
 A fraction-of-a-cent cost change can represent a large dollar change in overall
profitability, when selling millions of units of product a month. Managers must carefully
watch per unit costs on a daily basis through the production process, while at the same
time dealing with materials and output in huge quantities.

 Materials part way through a process (e.g. chemicals) might need to be given a value,
process costing allows for this. By determining what cost the part processed material has
incurred such as labour or overhead an “equivalent unit” relative to the value of a
finished process can be calculated.
 It is necessary to avoid losses in process to increase the profit of a company by fixing the
reasonable prices.
 Performances measurement must be made in the production department that’s way
process costing is used.
1.6.6 OBJECTIVES OF PROCESS COSTING

The important objectives of process costing is as follows,
 To ascertain the cost of various products produced by the company.
 To improve the profitability of The Nehal Manufacturing And Trading Company by
eliminating the wastages in the process.
 To study the efficient material control adopted by the company.
 To help the company to take managerial control by evaluating the performances of
each process.
 To offer constructive suggestion based on findings.
1.6.7 ROLE AND RELEVANCE OF PROCESS COSTING

Process costing plays a very important role in the industry where industries producing
standard products with continuous process.
 It helps in determining the cost incurred for each process in the production of products.
 It helps in eliminating the wastages in process.
 It is useful where an industrial process goes through a number of stages and output of one
stage of process becomes the input for the next process.
 It is useful to industries easily quote the prices of the product.
 Helps in fixing the product price.
 It plays as a managerial control role by providing the information necessary for
managerial decision.

 Ascertain the accurate cost of each process.

 It lead to identifies the efficiency of each process and eliminating the unwanted expenses.
 The process cost centres are clearly defined and all costs centres are accumulated.
 Both direct and indirect costs are accumulated in each process, helps in overhead
absorption.
 It is possible to have managerial control by evaluating the performance of each process.
1.6.8 ADVANTAGES OF PROCESS COSTING

 Process costing is useful where an industrial process goes through a number of stages
and the output of one stage of process becomes the input for the next.
 It can be applied to any industrial process where there is a mass production of
homogeneous output.
 It is possible to have managerial control by evaluating the performances of each process.
 It is possible to determine process cost periodically at short intervals. Average units cost
can be computed weekly or even daily.
 It is simple and less expensive to find out the process cost.
 It is easy to quote the prices with standardization of process.
 It is easy to allocate the expenses to process in order to have accurate costs.
 In process costing, the products are homogeneous. As results cost per units can be easily
computed by averaging the total cost and prices quotations become easier.
 It is simple and involves less clerical work compare to job costing.
 Helps in finding the normal and abnormal gains and loss.
1.6.9 DISADVANTAGES OF PROCESS COSTING

Process costing also limiting certain drawbacks they are as under,
 The cost obtained at each process in only historical cost and is not very useful for
effective control.
 Process costing is based on average cost methods, which is not that suitable for
performance analysis, evaluation and managerial control.
 Once an error is committed in one process, it is carried to the subsequent process.

 The computation of average cost is difficult in those cases where more than one type of
product is manufactured.
 Process costing does not evaluate the efficiency of individual workers or supervisor.
 Where different products arise in the same process it is not possible to exactly ascertain
the total cost of the product.
1.7 PROCESS COSTING V/S JOB COSTING

1. Job costing is used when the cost object is an individual unit or a distinct product or
services. On the other hand, process costing as generally used for a mass identical
products or services.
2. In job costing are accumulated by each individual product or services, where as in
process costing cost is accumulated in a period.
3. Job costing is done a specific order being produced. On the other hand, Production is
done for storing the stock of goods for future sales.
4. Under job costing there are usually no transfers of cost from one job to another. Where a
transfers of costs from one process to another is made under process costing.
5. Under job costing, as each product unit is different and the production is not continuous,
proper control is comparatively difficult. On the other hand, as the production is
standardized and stable, proper control is comparatively easy in process costing.
6. There is more paper work under job costing where as less paper work in process costing.
1.8 APPLICATIONS OF PROCESS COSTING

Process costing is applicable to the industries, where the mass production is made with
standard products. Process costing is applicable to the following industries,
1. Textile mills. 7. Steel mill.
2. Chemical works. 8. Paint manufacture.
3. Oil refining. 9. Soap making.
4. Cement manufacture. 10. Sugar manufacture.
5. Paper manufacture. 11. Plastic manufacture.
6. Food processing. 12. Confectionaries, etc.

1.9 FUNDAMENTAL PRINCIPLES OF PROCESS COSTING

The following are the basic fundamental principles of process costing,
1. Cost of material, wages and overhead expenses are collected for each process or
operation in a period.
2. Adequate records in respect of output and scrap of each processes or operation
during the period are kept.
3. The cost per unit of each process incurred during a period by the number of units of
produced during the period.
4. The finished products of one process as transferred as raw material to the next
process.
1.10 PROCESS COSTING PROCEDURE

The essential stages in process costing procedure are as follows,
1. The factory is divided into a number of processes and an account is maintained for each
process.
2. Each process account is debited with in material cost, labour cost, and direct expenses
and overhead allocated to the process.
3. The output of a process is transferred to the next process in the sequences. In other words,
finished output of one process becomes input of next process.
4. The finished output of the last process is transferred to the finished goods account.
Process I A/C Process II A/C Process III A/C Finished Goods A/C
DR CR DR CR DR CR DR CR
IN IN OUT IN OUT
OUT
PUT PUT PUT PUT PUT PUT
Process costing procedure.

1.11 PROCESS COST ACCOUNT

For each process an individual process of production is treated as a distinct cost centre.
MEANING
Process cost account is a statement of account which records the total expenses and incomes of a
particular process.
A. Items on the Debit side:
 Cost of materials used in the process.
 Cost of labour.
 Direct expenses incurred in that process.
 Overheads charged to that process on some pre-determined.
 Cost of ratification of normal defectives.
 Cost of abnormal gain (if any arises in that process).
B. Items on the Credit side:
Each process account is credited with,
 Scrap value of normal loss.
 Cost of abnormal loss.
For example,
Dr Process Cost Account Cr
Particulars Amount Particulars Amount
To Materials XXX By Normal Loss XXX
To Labour Cost XXX By Transferred to Process B A/C XXX
To Direct Expenses XXX
To Factory Overhead XXX
To Indirect Expenses XXX
Total = XXX Total = XXX

1.12 ACCOUNTING TREATMENT OF ITEMS INVOVLED IN PROCESS

ACCOUNT
1. COST OF PROCESS
The cost of output of the process is transferred to the next process. The cost of each process
is thus made up to cost brought forward from the previous process and next cost of material,
labour and overhead added in that process after reducing the sales value of scrap. The net
cost of the finished process is transferred to the finished goods account. The net cost is
divided by the number of units produced to determine the average cost per unit in that
process.
Cost Per Unit = Total cost of process

No of units produced
2. PROCESS LOSSES
In many process, some loss is inevitable. Certain production techniques are of such a nature
that some loss is inherent to the production, wastage of material, evaporation of material are
also unavoidable, in some process. But sometimes the losses are also accruing due to the
negligence of labour, poor quality raw material, poor technology, etc. These are normally
called as avoidable losses. Basically process loss are classified in two categories,
a) Normal Loss:
Normal loss is an unavoidable loss which accurse due to inherent nature of the materials
and production process under normal conditions. It is normally estimated on the basis of
past experience of the industry. It may be in the form of normal wastages, normal
spoilage and normal defectiveness. It may accurse at any time of the process. No of units
normal loss, input x expected percentage of normal loss. The cost of normal loss is a
process, if the normal loss units can be sold as a scrap then the sales value is credited
with process account.
Normal loss = Number of units wastage * scrap value
b) Abnormal Loss:
Any loss by unexpected abnormal conditions such as plant breakdown, substandard

materials, carelessness, accident, etc. such losses are in excess of pre-determined normal
losses. This loss is basically avoidable. Thus abnormal losses arrive when actual losses
are more than expected losses. The units of abnormal losses are calculated as under.
Abnormal loss = Actual loss – Normal loss
The value of abnormal loss per unit will be calculated with the help of following formula
Total cost – Value of Normal loss
Cost per unit =
Input units – Normal loss units
Abnormal loss should be credited to concerned process control.

c) Abnormal Gain:
Abnormal gain is being the result of actual loss being less than normal loss. If scrap
realization shown against normal loss gets reduced by the scrap value of the abnormal
gain.
Normal cost of normal output
Abnormal gain = Normal output
The scrap values of abnormal gain units are transferred to normal loss account since it arrive out
of the saving of normal loss. The difference is transferred to costing profit and loss account as a
real loss/gain.
1.13 PROCESS COSTING AT THE NEHAL MANUFATURING AND TRADING

COMPANY
Nehal trading company has been in the clothing business for more than a decade. Led by young,
dynamic and enterprising team, it has an exceptional balance of experience and young thinking.
The company was founded in 2002; the company combines experience with the latest
technology. This allows to producing contemporary dress shirts for a modern men and kids. The
company can proudly say that the quality and design of our shirts are comparable to the world’s

best shirt makers. In the year of 2014 the branch was started as a brain child of experienced shirt
marketing & manufacturing team. Factory situated in centre of Bangalore Manufacturing hub
Singasnadra with 20000.sq.ft.in 7 floors. There are many other branches in Karnataka, Kerala
and Tamilnadu.
Today Nehal trading company offers many brands of men’s shirt through excellence distribution
network across Kerala, Tamilnadu, Dubai and Bahrain. And all the brands have a specialized
‘junior’ segment exclusively tailored for kids. Nehal trading company started producing high
quality of men’s shirts. It is the most preferred manufacturer of men’s shirts and meets the
demand of men’s by giving a better price and best quality of shirts in textile industry. Factory set
up to deliver good quality products to domestic market with team work and effective utilization
of raw materials and manpower. At Nehal trading company fashion is always about achieving
the correct combination of comfort and self-expression. The new casual gentleman unveils the
personality through the fabrics they choose to create the customized outfits. As it is a processing
industry the costing method has been adopted by the company is process costing. The
organization core operation is the textile industry. The company main concentrates on producing
cloth product, like t-shirts, formal shirts etc. each of the above product under goes several
processes to become main product.
The process involved in the above product can be shown below, Cloth process flow chart:
Cloth
Cutting
Sewing
Finishing
Shirts
CHAPTER-2
REVIEW OF LITERATURE AND RESEARCH DESIGN

2.1TITLE OF THE STUDY
“A STUDY ON PROCESS COSTING IN MANUFACTURING INDUSTRY-WITH SPECIAL
REFERENCE TO NEHAL MANUFACTURING AND TRADING COMPANY,
BANGALORE”.
2.2 STATEMENT OF PROBLEM

The research study is about finding out the cost of the various products and profitability of The
NEHAL MANUFACTURING AND TRADING COMPANY Pvt. Limited and also to find out
material cost of the company. This study is conducted to create awareness in the organization for
the maximum utilization of costs in processing. For growth and profit maximization of the, it is
essential to find out the total cost and to make a comparative study of the cost of current period
with that of the corresponding previous period. So here the analysis is made to find the feasibility
of the company’s cost. The study also helpful for the top management to examine the utilization
of cost and eliminate the wasteful expenditure, which is directly involved in the production and
also helps in proper control over the cost, as expenditure incurred is identified against
departments and accounted against expense account.
2.3LITERATURE REVIEW
A literature review is a text of a scholarly paper, which includes the current knowledge including
substantive findings, as well as theoretical and methodological contribution to a particular topic.
Different authors review process costing in different ways some of them as follows,
Parkinson J -2011 (costing in process manufacturing) also reported that standard costing was
in virtually universal use in process cost industries. In a standard cost environment, a lot of the
structure of process costing theory disappears: there is no difference between weighted average
and FIFO inventory valuations as all inventory is stated at standard cost; there is no
normal/abnormal loss dichotomy as normal losses are incorporated in standards and any
abnormal loss is reported as a variance; there is no sense of actual costs cascading through

sequential processes eventually to reveal the actual total product cost: that is all replaced by the
standard cost.
Dorsch J and J Wilson -2010 (process costing and management accounting in today’s
business environment), investigated process costing in the packaging industry in USA. They
carried out in-depth interviews with personnel at three packaging companies: one large, one
small and one of intermediate size. Their focus was to see how process cost information was
used for strategic management accounting and control. Their found that all three organizations
relied heavily on process cost information to support management control. All three companies
used standard costing and variance analysis to achieve this aim. The two larger companies relied
extensively on ERP systems to establish the quantity and degree of completion of ending work-
in-process. In the smaller company, ending work-in-process was physically counted, and the
equivalent units were calculated on the basis of 75% completion (regardless of the actual degree
of completion)
Gagne and Discenza -1995 (process based costing) describes that cost management method
must be helpful in reduction of existing product cost and production of new product to meet
customer requirement at lower cost. They said that process costing method helps in minimizing
the cost by continues mass production. They discussed that the process costing which helps in
fixing the selling price of the product.
Cooper and Yoshikawa -1994 (Cost management practices) Cooper & Yoshikawa (1994)
exhibited a case study of three Japanese firms to examine the cost management practices and to
identify the development of inter-organizational cost management systems. They said all three
firms were involved in the same supply chain. The system of inter-organizational cost
management was planned to create downward cost pressures on all three or the entire supplier
chain. They said the cost pressure was attained through different methods like target costing
systems, minimum cost investigations and quality-price functionality balances. They concluded
that with cooperation or with the system of inter-organizational cost management product can be
designed jointly and firms can take more cost reduction then local cost reduction.
Skinner. R.C. -1978 (process costing)Skinner reported the results of a survey of 22 UK and
Australian companies in industries that included ‘industrial chemicals, pharmaceuticals, soap,
paints, oil refining, paper, and steel, rubber, glass, textiles, cement, confectionary. His findings
were that the equivalent unit’s calculation was not carried out by any of his respondents, either

because there was no ending work-in-process (WIP), or that it existed, but it was unchanged
from one period to the next. He also found that pure process costing was less common than
operations costing.
2.4 NEED FOR THE STUDY

There is a need to find out the cost of the product produced and profitability of the company and
to give solution to the problems of cost analysis, with the help of feasible solution and finally
evaluate the performances of the NEHAL MANUFACTURING AND TRADING COMPANY
Pvt. Limited, with the help of cost accounting methods.
2.5OBJECTIVE OF THE STUDY

The following are the main objective of the study they are,
 To ascertained the cost of various products produced by the company.
 To study the efficient material control adopted by the company.
 To make comparability analysis of each process cost.
 To offer constructive suggestion based on findings.
2.6 SCOPE OF THE STUDY

The NEHAL MANUFACTURING AND TRADING COMPANY Pvt. Limited. Company has
maintained the books both in cost accounting and financial accounting system. The study is
conducted with the help of cost accounting data and it does not include any financial accounting
information. The scope is limiting to the company’s cost accounting department only.
The study is limited to only to Singasandra, plant and not covered any other cities of Karnataka.
2.7SIGNIFICANCES OF THE STUDY

Cost accounting, as a tool of management, provides management with detailed records of the
cost relating to products, operations or functions.
Process cost assumes strategic significances in the corporate sector in view of the fallowing
reasons;

 Process cost provides data about profitability and unprofitability products and activities.
 All items of cost can be analyzed to minimize the losses and wastage emerging from the
manufacturing process and reduced the costs associated with different activities.
 Cost data can be obtained and compared with standard cost within the firm or industry.
 Process costing also provides data and information to determine the prices of product.
 Process costing helps to minimize the wastages by proper management control.
2.8RESEARCH METHODOLOGY
It describes the various steps that are generally adopted by a researcher in studying the research
problem along with the logic behind them. This study is based on face to face interview with
manager of cost accountant and staff of the company, and data as collected from cost sheet,
annual report, prospectus provided by the NEHAL MANUFACTURING AND TRADING
COMPANY Pvt. Limited., limited company.
2.9 SOURCES OF DATA
a) PRIMARY SOURCES
Are those are collected for the first time which is for a specific purpose.The primary data is
collected through face to face interview with staff of the company.
b) SECONDARY SOURCES
The major data was collected from secondary sources like annual reports, Cost sheets, books,
journals and some websites have been visited for the same purpose.
2.10 TOOLS FOR DATA ANALYSIS

The fallowing tools are used for data analysis
 Analysis of cost sheet
 Analysis of financial statements
 Analysis of annual reports
2.11 LIMITATIONS OF THE STUDY

 The study is confined only to The NEHAL MANUFACTURING AND TRADING

COMPANY Pvt. Limited. Singasadra.
 The major limitation of this is practical difficulties.
 The study is limited to a period of two months only.
 Delay in information collection is another major constraint of the study.
 The study is restricted only The NEHAL MANUFACTURING AND TRADING
COMPANY Pvt. Limited. It is not compared with any other companies.
 Access to the information is limited to company only.
 The information given by the company is best of their knowledge; it may not be true also.
2.12 CHAPTER SCHEME

CHAPTER-I
INTRODUCTION
This chapter deals with the introduction to process costing, meaning, definition, concepts,
feature, objectives advantages, disadvantages principles, accounting procedures and role of
process costing.
CHAPTER-II
REVIEW OF LITERATURE AND RESEARCH DESIGN
This chapter deals with structure of research consists of title of the study, scope, objective,
methodology, sources of data collection and its limitations
CHAPTER-III
COMPANY PROFILE
This chapter deals with the details regarding company where the research is done. It explains
company historical background, vision and mission, organization structure, products profile and
other aspects of The NEHAL MANUFACTURING AND TRADING COMPANY Pvt.
Limited Company.
CHAPTER-IV
DATA ANALYSIS AND INTERPRETATION
This chapter includes main work of research study, and deals with analysis of data and
interpretation of information using techniques.
CHAPTER-V
FINDINGS, SUGGESTIONS AND CONCLUSION
This chapter deals the findings that have been made from the data collected. Based on the
comparison, suggestions are drawn and recommended to the organization. It also includes the
conclusion of the entire project report.
CHAPTER-3
COMPANY PROFILE
3.1 NEHAL TRADING COMPANY
Nehal trading company has been in the clothing business for more than a decade. Led by young,
dynamic and enterprising team, it has an exceptional balance of experience and young thinking.
The company was founded in 2002; the company combines experience with the latest
technology. This allows to produce contemporary dress shirts for a modern men and kids. The
company can proudly say that the quality and design of our shirts are comparable to the world’s
best shirt makers. In the year of 2014 the branch was started as a brain child of experienced shirt
marketing & manufacturing team. Factory situated in centre of Bangalore Manufacturing hub
Singasnadra with 20000 sq ft in 7 floors. There are many other branches in Karnataka, Kerala
and Tamilnadu.
Today Nehal trading company offers many brands of men’s shirt through excellence distribution
network across Kerala, Tamilnadu, Dubai and Bahrain. And all the brands have a specialised
‘junior’ segment exclusively tailored for kids. Nehal trading company started producing high
quality of men’s shirts. It is the most preferred manufacturer of men’s shirts and meets the
demand of men’s by giving a better price and best quality of shirts in textile industry. Factory set
up to deliver good quality products to domestic market with team work and effective utilization
of raw materials and manpower. At Nehal trading company fashion is always about achieving
the correct combination of comfort and self-expression. The new casual gentlemen unveils the
personality through the fabrics they choose to create the customized outfits.
The shirts are better shirts because of
1. Better fabric: super soft 100%certified organic cotton.

2. Better fit: not too baggy and not too skinny.
3. Better service: speak to real person.
4. Better quality: to make the best, have to start with the best.
5. Better you: classic style meets forward thinking.
3.2 MISSION
To deliver quality product with the ingredients
 Volume Flexibility
 Team Work
 Quick Turn Around
 Competitive Price
 Service Oriented
3.3 VISION
To widen the perspective and to emerge as a favourite, widely accepted and most adaptable
men’s clothing company.
 To be a globally competitive manufacturer of quality men’s shirts.

 Expansion of business.
 To be a leader in textile industry.
3.4 TEAM WORK
Business Head Nehal Owner
Production Manager Mahesh
Front end & Planning Santhosh
Production Merchandising Praveen
3.5 SOCIAL COMPLIANCE

 Company’s management is committed to protect human and labour rights and comply
with local labour laws.
 Workers environment healthy safety is given utmost care.
 Assist under privileged people – by giving them hand work and opportunity in the value
added product. Hence we give lot importance for manual work. More than Profit
Company looks at this aspect.
 Fight against poverty, identifying poor family and giving them work in the company and
paying them minimum wages as per law of the law.
 Education and training on the technical area so that they stand on their own feet.
 International factory audit firm SEDEX approved.
 FAIR TRADE and GOTS certificated.
3.6 BRANDS OF NEHAL TRADING COMPANY
The brands of Nehal trading company, Looking and feeling cool and relaxed in all occasions are
easy as 1, 2, 3…
1. LENSMAN
2. BLACK FINCH
3. EURO FINCH
3.6.1 LENSMAN
“Perfect for cool occasions.
Available for men and kids”
A better shirt for a better man. The epitome of smart casual shirts. An exclusive 100% cotton
Lens man shirt is made from the fine fabrics and with a pleasing combination of wonderfully
bright and subdued tones. New designs from Lens man in spots, stars, flowers, stripes and checks
will you highly satisfactory and somehow lend certain elegance.
3.6.2 BLACK FINCH

“Available for men and kids”
Nehal trading company has been making excellent quality shirts and the pride in these products
is evident in every stitch and the immaculate finish. Catch Black Finch, a very smart and good
quality shirt in every sense of the world. Choose one of the new colourful cotton shirts, combine
with the favourite chino and get ready for a bright and breezy day.
3.6.3 EURO FINCH
“It will make you feel fine. Beautiful.
Available for men and kids”
As the stakes get higher, and a chap gets a little hot under the collar, there is nothing else quite as
comfortable as a luxurious formal shirts and casual shirts. Euro Finch, smart and colourful
classic, has the signature generous cut and neat collar, button cuffs and perfectly matching breast
pocket.
3.7 SPECIALTY OF NEHAL TRADING COMPANY’S SHIRT
Shirt making has been the heart and heritage of Nehal trading company. Since our inception, we
offer some of the finest and exceptional range of bespoke shirts using the finest clothes, which
are crafted exactly to the wearer’s dimensions to provide that extra level of comfort.
Few reasons that why the shirts are special:
1. A quality source:
It’s simple to make the best you have to start with the best. That’s why company source
the finest clothes that company can find to create the clothing, just as they do for their
shirts.
2. The finest ingredients:

At Nehal trading company every shirt is finished with the quality buttons. This always
provides a gentle feel on the cloth.
3. Never a stitch up:
All the shirts use quality cotton. Crafted with high attention to detail creating no wobble
on the seams you on cheaper shirts. This appreciation for the details doesn’t go
unnoticed; its quality can see, feel and touch in everything we create.
4. Making the grade:
Selecting only the finest clothes for all brands of shirts, as well as designing the own
exclusive cloth patterns for use in ready to wear and bespoke shirts.
5. Timeless style:
Creating a new patterns and always search for new styles. It’s also the reason that
company have chosen to work with tailors who specialize in custom attire. Their attention
to the details and the skilled craftsmanship produces quality, stylish shirts that fit
perfectly.
6. Always a cut above:
Unparalleled style and rich craftsmanship of Nehal trading company places always a cut
above. The craftsmanship is not just something that can see, it’s also something that can
feel.
From design to packing each piece of shirts, Nehal trading company gives special
attention to details so that those looking closely will understand that the maker and
wearer share a common bond high standard.
3.8 PRODUCTION PROCESS
There are various steps in production process of men’s shirts at Nehal trading company
1. Cutting
a) Numbering
b) Bundling
c) Loading

2. Sewing
a) Collar making / neck band
b) Pocket making and attachment
c) Attachment of brand logo
d) Front back setting and attachment
e) Collar attachment
f) Attachment of size label
g) Sleeves settings and attachment
h) Attachment of buttons
3. Dispatch
a) Washing
b) Cutting the extra trims
c) Ironing
d) Packing
e) Final goods are ready.
3.9 PRODUCTION CAPABALITY

Men’s Casual Shirt
Area Capacity Availability
Sampling 1000pcs per Month
Casual Shirts 125000pcs per Month
3.10 MACHINERY LIST

Names Numbers
UBT Special Machine 252
Single Needle Machine 60
Kansai Special Machine 12
Saddle stitch 2
Zigzag Machine 2
Button Hole 6
Button Attach 7
Edge Cutter Machine 36
Eastman Cutting Machine 4
Double Needle Chain Stitch 18
Feed Off Arm 12
Over Lock 8
Treble Needle chain Stitch 12
Band Knife 1
Fusing Machine (600) 2
Grand Total 434
3.11 MANPOWER STRENGTH
Machinist 345
Non Machinist 200
Staffs 32
Total 581
3.12 SOCIAL AGENDA
 Employees Welfare / Health & Safety first in priority.

 Committed to protect Human and Labour rights and comply with local labour laws.
 No forced over work time.

 Medical / Saving facility

 Given priority for women empowerment and recruitment.
3.13 PRODUCT OFFERINGS

Nehal trading company currently produces an exhaustive range of shirts for men’s of brands
namely Lensman, Black finch, Euro finch.
3.14 QUALITY DEPARTMENT

Quality refers to the sum of the attributes or properties that describe a product. These are
generally expressed in terms of specific product characteristics such as length, width, colour,
specific gravity and the like. Quality is the only weapon to fight competition.
3.14.1 QUALITY POLICY

Providing customer satisfaction
 Maintaining quality consistently
 Cost should be reasonable
 On time supply of goods.
3.14.2 QUALITY CONTROL

The quality is the main concept of production. They have implemented certain
technologies and various steps to have a complete control on the production process. This finally
results in zero defective, durable, accurate output. They make use of quality assessment sheet in
order to monitor the production process, which will be later analyzed by the supervisor. This has
helped the Quality Control department to maintain the ensured quality at every phase of
production.
Today, the privilege of well-equipped technology is surrounded in all the sectors. Most of us are
highly conscious about the apparel manufacturing and also the quality of them. The current
Bangalore production mill is consisted of more than 500 employees.
 Perfection in each step:

At Nehal trading company, craftsmanship and traditional skills are combined with
seamless technology and attention to detail. Company is empowered by modern
infrastructure comprising of state-of–the-art manufacturing units. These units are
equipped with an advanced computerized system, single needle machines, button and
button hole machines, placket machines, over lock machines, etc. The sewing is done the
traditional way-machine sewing guides by skilful hands accompanied by the inevitable
production label.
 Quality control:
There are continual checks throughout the manufacturing process, all documented to
provide daily and weekly quality, so that any problem can be quickly remedied. The
product is strictly adhering to the international standards of quality. Constant review of
our processes and management system had led to the development of continuous
improvement program to offer better and satisfactory services to the customers. The
luxury garment is manufactured in a highly efficient yet traditional way.
3.14.3 THE QUALITY HAS BEEN CHECKED AT THREE STAGES
I Inspection incoming materials
While receiving the raw materials/sub contracted items at stores, verifying the quantity
and quality as per consignment documents. Inspection of materials/customer supplied
products as per control plan by QA inspector. If inspection is OK then accept the
materials, if not OK then reject the materials with specifying the reason.
II. In process inspection
Setting up of verification and approval prior to regular production. If inspection is OK

then, clearing the lot for further process if inspection is NOT OK then, keep the rejected
items aside and accepted parts will be processed further and all rejections are scrapped.

III Final inspection
Inspection of finished goods as per control plan. If inspection is OK then, clear the lot for
packing/dispatch. If inspection is NOT OK then, record the defective parts received,
conduct re-works where possible and re-inspects the same, forward accepted parts for
packaging and dispatch.
CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
INTRODUCTION

The data is collected from various sources such as information provided by the company, data
collected from the cost sheet, income and expenditure accounts and receipt and payment account.
The information collected is summarized tabulated, classified edited and finally analyzed and
interpreted to get the end result as to the performance of The NEHAL TRADING AND
MANUFACTURING Pvt. Limited.
It is a process of establishing the meaningful realationship between the items of two financial
statements with the objective of identifying the financial and operational strength and
weakness.This process includes both analysis and interpretation ,the following analysis and
evaluation is carried out with reference to therecords and statements of the past 3 years with
which it would be easy to understand.
MEANING OF DATA
Data is information that has been translated into a form that is more convenient to move or
process.In computing and data processing, data are often represented in a structure that is tabular
(made up of rows and columns), atree (a set of nodes with parent-child realtionship), or a graph
(a set of connected nodes). Data are typically the results of measurements, and can be visualised
as graphs or images.
MEANING OF ANALYSIS
It refers to proper arangements of data where in the total figures in the financial statements are
regrouped their distinct or the different parts.
MEANING OF DATA ANALYSIS

The process of evaluating data using analytical and logical reasoning to examine each
component of the data provided. This form of analysis is just one of the many steps that must be
completed when conducting a research experiment.

MEANING OF INTERPRETATION
It refers to the comparision of various components and definite conclusion may be drawn about
the earning capacity efficiency, profitability, comparision is very essential for meaningfull
interpretation. It is the act of explaining, reframing, or otherwise showing your own
understanding of something.
CLASSIFICATION AND TABULATION

The complete instrument of data collection from annual report and company material contain a
vast mass of data. They cannot straight away provided answers to research question. They are
like raw materials, which need processing data processing involves classification and
summarization of data processing is an intermediary stage of work between data collection and
data analysis. Data processing consists of number of related operations and they are,
1. Editing.
2. Classification.
3. Coding.
4. Tabulation.
TABLE NO: 4.1

Cost of Production of Shirt (2016-2018) (Cost per unit)
Particulars 2015 – 2016 2016 – 2017 2017 - 2018

Cost of material 110 160 180
Cost of labour 50 55 60
Processing cost 15 16 20
Factory overhead 10 12 15
Office overhead 20 22 25
Selling and distribution overhead 05 08 10
Total Cost = 240 273 310
Profit margin 50 70 125
Selling price to retailer 290 343 435
Retailers margin 110 107 115
Selling Price = 390 450 550
INTERPRETATION
From the above table (4.1) it reveals that Cost of raw material per unit shows increasing trend i.e.
each year cost of material is increased by an average of 50 Rupees each. All other expenses
namely processing cost, factory overhead, office and administration overhead and selling
expenses also increased. Total cost also shows increasing trend. Profit of both company margin
as well as retailer margin also increases yearly. Selling price of the product of Shirt in the year
2015-16 is 240, in the next year it is increased by 43, and 37 in, 2015-16, 2016-17and 2017-18
respectively.
GRAPH NO: 4.1
Cost of Production of Shirt (2016-2018) (Cost per unit)

600
500
400
300
200
100
0
ar
s ial ou
r st
ea
d
ea
d
ea
d
st
= in er in =
cul ter ab g co
r h r h r h Co arg tail arg r ice
a l e
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in
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Pa o st ce y e n To r o e i le llin
st Co o r c o P ic ta Se
Co Pr cto Offi uti pr Re
Fa ib g
str ell
in
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d
g an
llin
Se
INFERENCE
From the above chart (4.1) it is interpreted that all the cost relating to production of shirts per
unit is increased yearly, it shows that the production of shirt is increased due to the demand of
that product. The last year cost of production is high compared to the previous last year there is a
4 Rupees different from 2016-17 to 2017-18per unit at the same time price also increase it show
that demand of that product is increased.
TABLE NO: 4. 2
Total Cost of Raw Cloth (2016-2018)

Year Cost of Raw Cloth No of Meter used Total Cost
2015 – 16 90 90000 8100000
2016 – 17 105 108000 11340000
2017 – 18 110 129600 14256000
INTERPRETATION
From the above table (4.2) it is analysed that, Cost of raw cloth per meter is increased yearly at
an average price of 5 rupees per meter. Number of units consumed yearly is also increased i.e.
90,000 in 2015-16 and next year increased by 18,000 meters and awhile in the last year also
increased by 21,600 meters. The total cost it shows increasing trend due to consumption and cost
of raw cloth increased day by day.
GRAPH NO: 4.2
Total Cost of Raw Cloth (2016-2018)

16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
Year
Cost of Raw
Cloth No of Meter used
Total Cost
INFERENCE
In the chart (4.2) shows that the cost of cloth is increased day by day because the raw cotton
collected from suppliers directly and it includes transportation cost for collecting the raw cloth.
Number of consumed by the company also increased and also, total cost increases it shows
increase in production volume. The company can increase the production by collecting more
number of raw cloths from the suppliers by giving extra benefits, compare to other competitors.
TABLE NO: 4.3
Total Cost of Process – 1 (Cutting) (Rs in 000’s) (2016-2018)

Particulars 2015 – 16 2016 - 17 2017 -18
Cost of material 3240 4320 6739.2
Cost of labour 360 648 1036.8
Process cost 108 172.8 311.04
Factory overhead 72 129.6 311.04
Administration 252 345.6 466.56

overhead
Total cost = 4032 5610 8864.64
INTERPRETATION
From the above table (4.3) it analyzed that the cost incurred for process 1 is increased day by
day. Cost of material, cost of labour, process cost factory overhead, administration overhead is
increased between2015-16 to 2017-18, it shows increase trend. Total cost is increased yearly it is
rupees thousands in 2015-16, 4032 in 2016-17, 5610 and 8864.64 in the last year.
GRAPH NO: 4.3
Total Cost of Process – 1 (Cutting) (Rs in 000’s) (2016-2018)

20000
18000
16000
14000
12000
10000
8000
2017 -18
6000
2016 - 17
4000 2015 – 16
2000
0
ial ou
r
os
t
ea
d ad t=
ter b s c
rh r he cos
a la es ve e l
fm of oc o ov ta
o st Pr y n To
st Co
r
tio
Co acto r a
F ist
in
m
Ad
INFERENCE
The above chart shows that all the cost incurred namely cost of material, cost of labour,
processing cost and factory and administration cost is increasing day by day, it represents that
value of money is increased at the same time volume of production is increased due to meet the
demand as well as competition. The company has reduce the labour cost by effective
supervision and motivation compare to other companies labour cost high it as to reduce in order
to keep price at below the competitors price.
TABLE NO: 4.4
Total Cost of Process – 2 (Sewing) (Rs in 000’s) (2016-2018)

Particulars 2015 – 2016 2016 – 2017 2017 – 2018
Cost of Material 720 1512 1555.2
Cost of Labour 900 1296 1296
Process Cost 288 345.6 414.72
Factory Overhead 180 259.6 311.04

Overhead
Total Cost = 2304 3672.4 3939.84
INTERPRETATION
From the above table (4.4) it is analyzed that the cost incurred for process II is increased day by
day. Cost of material is 2304 in the year 2015-16 and last year it is 3939.84 increased at
compare to last years. Cost of labour .Factory overhead and administration overhead also shows
increasing trend. Total cost is increased yearly it is 2304 in 2015-16, 3672.in 2016-17, and
3939.84 in the last year.
GRAPH NO: 4.4
Total Cost of Process – 2 (Sewing) (Rs in 000’s) (2016-2018)

100%
90%
80%
70%
60%
50%
40%
30% 2017 – 2018
20% 2016 - 2017
2015 - 2016
10%
0%
ial
ur
er
t
bo
at
os
ad
fM
La
sC
ad
he
of
t=
o
es
he
er
st
oc
st
os
er
Ov
Co
Co
Pr
lC
Ov
ry
ta
n
cto
To
tio
Fa
ra
ist
in
m
Ad
INFERENCE
processing cost and factory and administration cost is increasing day by day, it represents that
value of money is increased at the same time volume of production is increased due to meet the
demand as well as competition. In this process processing cost is high, it as to reduce the cost by
proper utilization of resources.
TABLE NO: 4.5
Total Cost of Process – 3 (Finishing) (Rs in 000’s) (2016-2018)

Particulars 2015 – 2016 2016 - 2017 2017 – 2018
Cost of Material 360 1080 1036.8
Cost of Labour 540 432 777.6
Process Cost 144 172.8 311.04
Factory Overhead 108 129.6 155.52

Overhead
Distribution Overhead 180 345.6 518.4
Total Cost = 1588 2505.6 3265.97
INTERPRETATION
From the above table (4.5) it is interpreted that the cost incurred for finished product is increased
day by day. Cost of material, Cost of labour, Factory overhead and Administration overhead also
shows increasing trend. In addition to above cost selling and distribution cost also added to the
total cost because this is the last process to become final product. Total cost is increased yearly it
is 1588 in 2015-16, 2505.6 in 2016-17, 2505.6 and 3265.97 in the last year.
GRAPH NO: 4.5
Total Cost of Process – 3 (Finishing) (Rs in 000’s) (2016-2018)

1600
1400
1200
1000
800
600
400
200
0
Cost of Cost of Labour Process Cost Factory Administration Distribution
Material Overhead Overhead Overhead
INFERENCE
processing cost and factory and administration cost is increasing day by day, in addition to above
cost, cost of selling and distribution overhead is added to total cost because it is a final process to
become finished product and incurred some expenses to sell that products to customer. Total cost
is also increased represents that value of money is increased at the same time volume of
production is increased due to meet the demand as well as competition.
TABLE NO: 4.6
Comparison of Process costing of each process of production
(Rs in 000’s) (2016-2018)

Year Process – 1 Process - 2 Process - 3
2015 – 16 108 144 288
2016 – 17 170.8 174.8 345.6
2017 – 18 309.04 313.04 414.72
INTERPRETATION
From the table (4.6) shows that, processing cost of each process is increased yearly. In the year
2015-16 processing cost of process I is 108, process II is 144 and that of last process is 288.In
the year 2016-17 processing cost of process I and process II is 170.8 and 174.8and last process is
345.6.Last year also increased the processing cost like 309.04 in process I, 313.04 in process II
and 414.72in the finished process.
GRAPH NO: 4.6
Comparison of Process costing of each process of production
(Rs in 000’s) (2016-2018)

450
400
350
300
250 2015 - 16
2016 - 17
200 2017 - 18
150
100
50
0
Process - 1 Process - 2 Process - 3
INFERENCE
From the above chart is interpreted that processing cost of each process shows increasing trend
while comparing the each process, process I cost is more compare to process II and process II
cost is more compare to finished process. Processing cost includes raw material conversion cost,
heating charges, cooling charges, maintaining proper storage cost and all other expenses etc.
TABLE NO: 4.7
Comparison of Total cost of each process of production
(Rs in 000’s) (2016-2018)

Year Process – 1 Process - 2 Process – 3
2015 – 16 1588 2304 4032
2016 – 17 2505.6 3672.4 5616
2017 – 18 3265.97 3939.84 8864.64
INTERPRETATION
From the above table (4.7) it interpreted that total cost of each process is increased due to
increase in raw material cost, while compare to last year’s total cost of process I (3265.97),
process II (3939.84) and that of finished process (8864.64) is more than process II. The above
table show that each process cost is decreasing yearly due to cost of expenses relating to
production is increased.
GRAPH NO: 4.7
Comparison of Total cost of each process of production
(Rs in 000’s) (2016-2018)

9000
8000
7000
6000
5000 2015 - 16
2016 – 17
4000 2017 – 18
3000
2000
1000
0
Process - 1 Process - 2 Process – 3
INFERENCE
From the above chart can interpret that total cost of each process shows increasing trend while
comparing the each process, process I cost is less compare to process II and process II cost is less
compare to finished process. Total cost includes raw material cost, labour cost, processing cost,
factory overhead, office and administration overhead of each process and selling and distribution
overhead for the final product process.
TABLE NO: 4.8
Cost of wastage of raw-materials in Process-1 (Cutting)
(Rs in 000’s) (2016-2018)

Year Cost of Material % of Wastage Cost of Wastage
2015 – 16 3240 15 486
2016 – 17 4320 14 604.8
2017 – 18 6739.2 16 1078.272
INTERPRETATION
From the above table (4.8) it can analyzed that, in the year 2015-16 percentage of wastage is
15% that’s cost is 3240 and the next year percentage of wastage is 14% and cost of that is 4320.
In the last year percentage of wastage is 16% and that of cost is 1078.272.
GRAPH NO: 4.8
Cost of wastage of raw-materials in Process-1 (Cutting)
(Rs in 000’s) (2016-2018)

8000
7000
6000
5000
2015 - 16
4000
2016 - 17
3000 2017 - 18
2000
1000
0
Cost of Material % of Wastage Cost of Wastage
INFERENCE
From the above chart interpreted that wastages in process I in the year 2015-16 is 15% and it is
reduced by 1% in the 2016-17 year. But in the last year wastage is increased by 2% due to
improper supervision, while coming to the cost of wastage even though fluctuating the
percentage of wastage except in the year 2016-17 all year cost is increased due to increasing the
prices of raw material.
TABLE NO: 4.9
Cost of wastage of raw-materials in Process-2 (Sewing)
(Rs in 000’s) (2016-2018)

2015 – 16 720 4 288
2016 – 17 1512 3 45.36
2017 - 18 1555.2 3 46.656
INTERPRETATION
From the above table (4.9) it can analyzed that, In the year 2015-16 percentage of wastage is 4%
that’s cost is 720 and the next two year percentage of wastage is constant but cost of that wastage
is 3%.
GRAPH NO: 4.9
Cost of wastage of raw-materials in Process-2 (Sewing)
(Rs in 000’s) (2016-2018)

Cost of Material Cost of Wastage
45.36 46.66
288
1512 1555.2
720
2015 - 16 2016 - 17 2017 - 18
INFERENCE
From the above chart interpreted that wastages in process II in the year 2015-16 is 4% and it is
constant in the 2016-17 and 2017-18 year but cost of wastage is decreased by 45.36 thousand
rupees due to proper supervision, in the next year it was constant due to proper supervision
While coming to the cost of wastage even though fluctuating the percentage of wastage except
in the year 2016-17 and 2017-18 reaming year cost is increased due to increasing the prices of
raw-material.
TABLE NO: 4.10
Cost of wastage of raw-material in Process-3 (Finishing)
(Rs in 000’s) (2016-2018)

2015 – 16 360 2 7.2
2016 – 17 1080 2 21.6
2017 - 18 1036.8 3 31.104
INTERPRETATION
From the above table (4.10) it can analyzed that,
 In the year 2015-16 percentage of wastage is 2% that’s cost is 7.2 and the next year
percentage of wastage is constant but cost of that wastage is 21.6 thousand.
 In the last year percentage of wastage is 3% and that of cost is 31.104 thousand.
GRAPH NO: 4.10
Cost of wastage of raw-material in Process-3 (Finishing)
(Rs in 000’s) (2016-2018)

Cost of Wastage
2017 - 18
% of Wastage
2016 - 17
2015 - 16
Cost of Material
0 200 400 600 800 1000 1200
INFERENCE
From the above chart interpreted that wastages in finished process in the year 2015-16 is 2% and
it is constant in the 2016-17 year but cost of wastage is increased to 31.104 thousand, due to
improper supervision, While coming to the cost of wastage even though fluctuating the
percentage of wastage except in the year 2015-16 all year cost is increased due to increasing the
prices of raw material.
TABLE NO: 4.11
Output of Shirts (Output in units) (2016-2018)

YEAR OUTPUT
(UNITS)
2015-16 36000
2016-17 43200
2017-18 51840
INTERPRETATION
From the above table (4.11) it can analyze that the output of product shirts is 48200 units in the
2015-16 year and it is increased to 43200 in the next year 2016-17. In the last year again output
is increased to 51840 units. The output of product shirts is increased yearly it shows that demand
of that product is increasing which means it is satisfied the customer’s requirement.
GRAPH NO: 4.11
Output of Shirts (Output in units) (2016-2018)

OUTPUT (UNITS)
60000
50000
40000
OUTPUT (UNITS)
30000
20000
10000
0
2015-16 2016-17 2017-18
INFERENCE
From the above chart interpreted that output of product shirts is increased yearly and last year
also output is increased it shows the increase in the production and demand for that product is
increased.
TABLE NO: 4.12
Total sales of Shirts (2016-2018)

YEAR SELLING PRICE OUTPUT SALES

(PER UNIT)
2015-16 290 36000 10440000
2016-17 373 43200 14817600
2017-18 435 51840 22550400
INTPRETATION
From the above table (4.12) it can analyzed
Selling price of the product shirts is increased day by day in the year 2015-16 it is 290, in the
next year 373, and last year it is 435 Rupees per unit. Output of product shirts is increased in
units yearly. Total sales also increased yearly.
GRAPH NO: 4.12
Total sales of Shirts (2016-2018)

25000000
20000000
15000000
SELLING PRICE
OUTPUT
10000000 SALES
5000000
0
2015-16 2016-17 2017-18
INFERENCE
From the above chart interpret that selling price and output is increased while coming to the total
sales it is increased day by day, due to increase in output in the last year the company has year by
producing more number of product shirts.
TABLE NO: 4.13
Total cost, Profit and Sales of Shirts (2016-2018)

YEAR TOTAL COST PROFIT SALES
2015-16 8640000 1800000 10440000
2016-17 11793600 3024000 14817600
2017-18 16070400 6480000 22550400
INTERPRETATION
From the above table (4.13) it can concluded that total cost has been increased yearly it is
8640000 Rupees in 2015-16, 11793600 Rupees and 16070400 Rupees in the last year. Profit of
that product shirts is also increased yearly it is 1800000 Rupees in 2015-16, 3024000 Rupees in
2016-17 , and 6480000 Rupees in the last year total sales also increased last year sales is high
compare to last year’s 22550400 Rupees.
GRAPH NO: 4.13
Total cost, Profit and Sales of Shirts (2016-2018)

18000000
16000000
14000000
12000000
2015-16
10000000
2016-17
8000000 2017-18
6000000
4000000
2000000
0
TOTAL COST PROFIT
INFERENCE
From the above chart shows that total cost of production of product shirts is increased yearly at
the same time sales also increased. Profit of the company also increased in the last year the same
has been increased overall company earning good profit and increasing the output sales.
CHAPTER-5
FINDINGS, SUGGESTIONS AND CONCLUSION
5.1 FINDINGS

From the study of Different Phases of Process costing at Nehal Manufacturing and Trading Pvt.
Limited we found the followings,
 Nehal Manufacturing and Trading Company is a manufacturing Shirts, it is used process

costing method for ascertaining the cost.
 The company follows cost accounting system for recording various cost items.
 From the above analysis the Sales volume of product shirts is increased over the year; it
shows that increase in production due to customer demand.
 The company is in continues process of manufacturing the shirts it shows that the demand
of the product is very high.
 Under the process costing method cloth is the main raw material for production of shirts;
it goes several processes to become finished product.
 Regarding the cost, all cost namely cost of material, cost of labour, processing cost,
administration cost of each process are increase due to increase in production.
 In the report, the cost of production of shirts cost per unit is increasing from year to year
and also the selling price of the shirts also increased when compared to the past year
2016-17.
 In the report, the total cost of raw cloth also increased and also the cost of shirt per piece
also increased.
 For the process I, cost of labour is also increased at an average price is in the last three
years.
 It is found that Price of the product is also average, so that the company can sell the
maximum product.
 The activities of the company are decided according to their specialization and there is
proper control in each and every department of the company.

 From the study it is found that there is a research and development department in the
company for quality maintenance and wastage reduction.
5.2 SUGGESTIONS
On the basis of analysis, the recommendation is for the improve the financial performance of
which leads the company to greater benefits.
 It is suggested that the company should use modern methods to reduce cost and output of
the product.
 The company has to reduce the wastage in the process of cutting, so that they could save
the material for the further production of shirt.
 It is suggested that even in the finished stage also lot of damaged shirts also identified so
the company can concentrate on quality of material when they buy.
 Company has to maintain optimum utilization of all resources.
 Company should beat the competitor’s price by producing the product with lowest cost
with higher quality.
 The company should complete the global market with the competitive price of the
product.
 Company has to maintain good relationship with employees, to avoid strikes, lockouts
which will affect production.
 The final accounts of the company are not easily understandable; it would be beneficial for
users in future if they maintain them according to normal accounting procedure.
 Company has to invest more in research and planning department to increase product
quality and reduce cost as well as wastages in each process.
5.3 CONCLUSION

Process costing is an accounting methodology that traces and accumulates direct cost and
allocates indirect costs of a manufacturing process. Cost is assigned to products usually in a large
batch, which might include an entire month’s production. Eventually, costs have to be including
an entire month’s production. It assigns average costs to each unit, and is the opposite extreme of
job costing which attempts to measure individual costs of production of each unit. Process cost is
usually a significant chapter which assigning costs to unit of production in companies producing
large quantities of homogeneous products.
Process costing is a costing methods widely used by the manufacturing industries where the
products are homogenous and standardized. This method is applicable to the industries where
production is continuous and output of one process becomes the input of subsequent process. It
traces and accumulates direct cost and allocates indirect cost of a manufacturing process which
helps in price fixation, avoiding wastages, inefficiency and finding the accurate cost of each
process, which leads to good managerial decisions. The Nehal manufacturing and trading Pvt.
limited has dominated the market position in large and medium products of shirts As per the
study made Nehal Manufacturing and Trading Pvt. Limited has given its best especially in the
field of planning, forecasting, investigation, designing, executing its operation to the expected
satisfactory level. Process costing helps the company to analyze the cost of each process and
helps to reduce the wastage. Process cost is a important method for manufacturing industry to
fixing the prices of the product, here Nehal Manufacturing and Trading Pvt.Limitedcompany its
production of shirts product using process costing to record the cost, under process I cutting is
the finished product of process II the same finished product become the raw material for next
process i.e. process II the total cost of process one become the raw material cost of process II.
Process two finished product become the raw material for the next process and the total cost of
process II is the raw material cost of next process. The last process finished product becomes the
final product of the process for that company adding some percentage of profit and fixing the
price. Compare to other competitive companies cost incurred in each process is high that’s way
company need not to meet competitors price. So only the holding of market share is 12%.
Finally, this project program was extremely beneficial to me because it helped to put more focus
on the various activities in a work environment. This study helped me to gain more knowledge
and experience. This experience, I am sure is going to prove as asset in my future endeavour.


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A STUDY ON PROCESS COSTING IN MANUFACTURING INDUSTRY-WITH SPECIAL

REFERENCE TO NEHAL MANUFACTURING AND TRADING COMPANY, BANGALORE.

1.1 INTRODUCTION OF COST

MEANING AND DEFINITION

Cost is amount of expenditure incurred for producing a product.

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 1

1.3 BASIC CONCEPTS OF COST

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 2

Costing techniques are as follows,

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 3

1.4 ELEMENTS OF COST

Cost of production/manufacturing consists of various expenses incurred on

Material Labour Expenses

To produce or manufacture material is required. For example to manufacture shirts cloth is

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 4

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 5

Indirect Expenses = Indirect Cost – Indirect Material – Indirect Labour

Prime Cost = Direct Material + Direct Labour + Direct Expenses

Overhead = Indirect Material + Indirect Labour – Indirect Expenses

Overheads are classified into following three categories:

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 6

1.5 METHODS OF COSTING

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 7

5) Single, output or unit costing

6) Composite or multiple costing

1.6 PROCESS COSTING

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 8

1.6.1MEANING OF PROCESS COSTING

1.6.2DEFINITIONS OF PROCESS COSTING

Chartered Institute of Management Accounts, London defines process costing as “The

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 9

1.6.3 CHARACTERISTICS (OR) FEATURES OF PROCESS COSTING

The distinctive features of process costing are as follows;

1.6.4 THE IMPORTANCE OF PROCESS COSTING

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 10

1.6.5 WHEN PROCESS COSTING IS APPLIED?

REASONS FOR USE

 Companies need to allocate total product costs to units of product.

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 11

1.6.6 OBJECTIVES OF PROCESS COSTING

1.6.7 ROLE AND RELEVANCE OF PROCESS COSTING

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 12

 Ascertain the accurate cost of each process.

1.6.8 ADVANTAGES OF PROCESS COSTING

1.6.9 DISADVANTAGES OF PROCESS COSTING

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 13

1.7 PROCESS COSTING V/S JOB COSTING

1.8 APPLICATIONS OF PROCESS COSTING

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 14

1.9 FUNDAMENTAL PRINCIPLES OF PROCESS COSTING

1.10 PROCESS COSTING PROCEDURE

Process costing procedure.

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 15

1.11 PROCESS COST ACCOUNT

Total = XXX Total = XXX

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 16

1.12 ACCOUNTING TREATMENT OF ITEMS INVOVLED IN PROCESS

Cost Per Unit = Total cost of process

Any loss by unexpected abnormal conditions such as plant breakdown, substandard

Abnormal loss should be credited to concerned process control.

1.13 PROCESS COSTING AT THE NEHAL MANUFATURING AND TRADING

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT. Page 18

REVIEW OF LITERATURE AND RESEARCH DESIGN