NAME: DIVYANSHU PAL

ROLL NO: 5527

CLASS: SYBAF
GUIDE: DR. ABIDA KHAN
TOPIC: PROCESS COSTING
• MEANING:
In simple words, process costing is a cost accounting technique, in which the costs
incurred during production are charged to processes and averaged over the total
units manufactured. For this purpose, process accounts are opened in the books of
accounts, for each process and all the expenses relating to the process for the period is
charged to the respective process account. For example, production of coconut oil
involves the following distinct processes:
(i) Copra crushing (ii) Refining and (iii) Finishing.
APPLICABILITY AND NECESSITY:
Process costing is applicable to several mining, manufacturing and public utility industries e.g mines
and quarries producing minerals and ores; industries producing textiles, chemicals, soaps, paper,
plastics, alcohol, electricity, gas and so on.
It becomes necessary to apply process costing to the Industries belonging to any of the following
categories:
1. One Product, Many Processes: It becomes necessary to find out the cost of each process
separately to control wastage for factories which produce a single item through number of
processes.
2. Many Products, Many Cycles: A Bakery can use the same equipments to produce either bread or
cakes. Each cycle is treated as separate process in order to find cost of the item in a particular cycle.
3. Many Products, Same Process: An oil Refinery can obtain many Joint Products such as refined
Oil, Gas, Steam, etc. in the same process. Process costing is used to ascertain the individual cost of
each such product.
 FEATURES:
1. The finished product is the result of two or more processes.
2. The product/output of the first process becomes the raw material for the second process and
so on.
3. The product is identical and homogeneous and units are indistinguishable during the
processes.
4. The cost incurred in each process is transferred to the next process along with the output so
that the last process which produces finished product can show the total cost or cost per unit.
5. It is quite common to incur normal loss and wastage. Sometimes, owing to abnormal
conditions even abnormal loss is also observed.
6. Sometimes, abnormal gain is also available in certain processes
ADVANTAGES:
1. Process costing helps determination of cost in each process and of the final product at short
intervals.

2. Process costing is suitable for standardized products, large scale production, identical or
homogeneous products etc.

3. It involves less clerical work and cost than job costing. Cost finding is simpler and less
expensive.

4. Allocation of expenses can be easily made and the costs in each process accurately
determined.

5. It is simple and less expensive to find out the process cost.

6. It is possible to have managerial control by evaluating the performance of each process.

DISADVANTAGES:

1. The process costing system does not disclose the weaknesses and inefficiencies of any process.
Hence, the accurate cost per unit cannot be calculated.

2. The calculated cost per unit may be a misleading if the apportionment of joint costs is not properly
done.

3. The process costing system does not consider the efforts of individual workers or supervisors.

4. The use of excessive materials and labour are not disclosed until the end of the period.

5. Process costing is based on historical cost. The available cost information may not be useful for
future managerial decision-making.

6. Process costing is not suitable for diverse products. It is suitable only for identical products.
CONCEPTS OF PROCESS COSTING:
 Normal Loss: Normal loss is the unavoidable loss of units in a processing department that occurs
majorly due to the nature of production operation or the nature of raw materials being processed. It
can be expected or anticipated in advance i.e. At the time of estimation.
 Abnormal Loss: Abnormal loss means that loss which is caused by unexpected or abnormal
conditions such as accident, machine breakdown, substandard material etc. From accounting point
of view we can say that abnormal loss is that loss which occurred over and above normal loss.
 Abnormal Gain: if the actual loss of a process is less than that of expected loss then the
difference between the two will be treated as abnormal gain. In another way we can define it as the
difference between actual production and expected production.
 Weight Loss: Generally in process costing, outputs of finished goods are not received equal to
the units of inputs. Difference between the units of input and output is called loss in weight. This
loss in weight may be due to evaporation, moisture and careless handling.
PROCESS COSTING VS JOB/CONTRACT COSTING
BASIS FOR COMPARISON PROCESS COSTING
MEANING A costing method, in which the
costs which are charged to various
processes and operations is
ascertained, is known as Process
Costing.
Process is the cost center in
COST CENTER
process costing
SCOPE OF COST The scope of cost reduction in
REDUCTION job costing is high
Cost is transferred from one
TRANSFER OF COST
process to another
The record keeping is Tedious
RECORD KEEPING
task in job costing.
JOB/CONTRACT COSTING
Job costing refers to calculating the cost
of a special contract, work order where
work is performed as per client’s or
customer’s instructions.
Job is the cost centre in job costing.
The scope of cost reduction in job
costing is less.
. No transfer of cost is made from one
job to another job
The record keeping is an Efficient
task in process costing.
THANK YOU!!!!