Process COSTing

KALPITA VARMA 44
PALLAVI ZORE 63
SAYLI PANDIT 29
AKANKSHA KADAM 18
TANVI CHAVAN 06
 INTRODUCTION
 Process costing is a special BRANCH of costing
used by the manufacturing industries.
 Who are involved in converting the RAW
MATERIAL into the FINISHED PRODUCT.
 Such work of conversation is done step by step ,
each step called “a process” .
 Process costing is a method of allocating
manufacturing cost to products to determine an
average cost per unit.
 WHAT IS PROCESS COSTING
??
 Process costing is a method of costing
used to find out the cost of the product in
each process.
 It is used to calculate cost per unit of
product is ascertained at each stage of
production.
 It is a form of operations costing.
 Process costing is used in industries like
chemicals, textiles, steel, rubber, sugar,
shoes, petrol, etc.
OVERVIEW OF PROCESS COSTING
SYSTEMS
 CONTINUOUS

FEATURES
HOMOGENEOUS

STANDARDIZED

EQUIVALENT
PRODUCTION
UNITS
PURPOSE OF PROCESS
COSTING
 To control the process.
 To know cumulative cost.
 To calculate the value of inventory of raw
material, work-in- progress and finished goods
at the end of the period.
 It is also used to assign price of the products.
 ADVANTAGES LIMITATIONS
PERIODICAL
NO DETAILED ANALYSIS
DETERMINATION OF COST

SIMPLE AND CHEAP HISTORICAL COSTS

MANAGERIAL CONTROL ESTIMATES

STANDARD PROCESSES DIFFICULT TO

AND PRODUCTS CALCULATE
 TERMS IN PROCESS
COSTING
 NORMAL LOSS
Normal loss is inherent in the processing
operation and which cannot be avoided.
Therefore it is also called as Unavoidable Loss.

 ABNORMAL LOSS
If the actual loss is greater than normal loss, then
such excess loss over and above the normal loss
is termed as abnormal loss.

 ABNORMAL GAIN
If the actual loss is less than the normal loss then
such different in the actual and normal loss is
termed as abnormal gains.
ACCOUNTING FOR LOSSES AND GAINS
IN PROCESS COSTING.

 NATURE OF
LOSSES
 Normal loss
 Abnormal loss

 NATURE OF
GAINS
 Abnormal gain
PROFOMA OF PROCESS COSTING
Cost per unit = total of debit side amount-total of credit side amoun
total of debit side units – total of credit side units
Q) The product of manufacturing concern passes through two processes A and
B and then to finished stock . It is ascertained that in each process 5% of total
weight is lost and 10% is scrap which from process A and B realize Rs80 and
Rs200 per tonns respectively.
The following are the figures relating to both the processes -

Particulars Process A Process B

Material (tonns) 1000 70
Cost per tone (Rs) 125 200
Wages (Rs) 28000 10000
Manufacturing Exp (Rs) 8000 5250
Output (tone) 830 780

Prepare process cost A/Cs showing cost per tone of each process .There
was no stock of work-in-process in any process.
Solution :
Note : Units = Tonns

Dr. Process “ A ” A/C Cr

particular Uni CP Amount particulars unit .
CPU Amount
s ts U s s s
To 100 125 125000 By loss of 50 - -
material 0 weight(5%)
To wages 28000 By normal 100 80 8000
loss(10%)
To 8000 By 20 180 3600
manufactu abnormal
ring exp. loss
By output 830 180 149400
transferred
to process
B
100 161000 100 161000
0 0
 Dr. Process “B ” A/c Cr.
particulars unit CP amoun particulars uni CP amount
s U t ts U
To input transferred 830 180 149400 By loss of 45 - -
from process A weight(5%)
To material 70 200 14000 By normal 90 200 18000
loss(10%)
To wages 10000 By out put 780 210 163800
transferred to
finished goods
To manufacturing 5250
exp.
To abnormal gains 15 210 3150

915 181800 915 181800

 Finished Stock A/C
Dr. Cr.

Particular Unit CPU amoun Particular units CPU amoun

s s t s t
To 780 210 163800 By 780 210 163800
output balance
Transferre c/d
d from
process B
A/C
780 163800 loss A/C
Abnormal 780 163800
Particulars Unit CPU Amount Particulars Units CPU Amount
s
To Process A 20 180 3600 By Sale of 20 80 1600
A/C Scrap A/C

By Loss 2000
transfer to
Costing P & L
A/C
20 3600 20 3600
• Lastly the process costing system provides
the mechanism to survive in a today’s price
competing world. It facilitates the effective
pricing.
• When the cost of achieving good quality
increases, cost of poor quality decreases
automatically