This document provides an overview of process costing concepts and procedures. It includes definitions of process costing, its characteristics, advantages and disadvantages compared to job costing. The key steps in process costing procedure are outlined. Common accounting terms like book value, net present value, and balance sheet are briefly defined. Different types of wages, incentives, and budgets are explained. The document concludes with sample questions that could be used to assess understanding of process costing topics.

1. DEPARTMENT OF MECHANICAL ENGG
BY B B BIRADAR
SHREE SANGANABSAVA MAHASWAMIJI POLYTECHNIC
VIJAYAPUR
B.L.D.E.A’s

2. COSTING
Characteristics ,Principles ,Procedure for Process
costing.
Wages-types,
Incentives-types,
Budget-Types,
 Accounting terminology like -book value-Net Present
Value-
Work in progress- Gross Domestic Product (GDP)-
balance sheet-
Tendering- manual tendering and e-tendering.

3. QUESTION BANK
1. Explain the process costing.
2. Explain the characteristics of process costing.
3. List disadvantages and advantages of process costing
4. Explain the principles of process costing
5. Differentiate between job costing and process costing
6. Explain the procedure of process costing
7. Define a) nominal wages b) real wages c) fair wages d) minimum wages
8. Explain the concept of incentives
9. Explain different types of budget
10. Explain briefly: book value-Net Present Value-Work in progress- Gross
Domestic Product (GDP)-balance sheet
11. Explain manual tendering
12. Explain E-tendering

4. 1.Explain the process costing
Process costing is a type of operation costing which
is used to ascertain the cost of a product at each
process or stage of manufacture.
CIMA defines process costing as "The costing
method applicable where goods or services result
from a sequence of continuous or repetitive
operations or processes. Costs are averaged over
the units produced during the period". Process
costing is suitable for industries producing
homogeneous products and where production is a
continuous flow.

5. 2. Explain the characteristics of process
costing.
Characteristics of Process Costing
1. Production is continuous flow of stock in
anticipation of demand.
2. Since the production is continuous there is always
work-in progress all beginning or closing.
3. Costs are found out at the end of the cost period.
4. The factory is divided into a number of process cost
centres
or departments. Account is maintained in each cost
centre.
5. All types of costs i.e. direct and indirect relating to
process
are recorded for each process cost centre.

6. 6. Finished product of one process is the raw
material for the next product and this procedure
continues until the final product arrives.
7. The cost of previous process is transferred to
the sub sequent process along with the output.
Thus total cost of the final product comprises of
all costs incurred in all the processes.
8. The cost of different processes as well as
finished product can be computed easily at short
intervals, say, on daily or
weekly basis.

7. 3. List disadvantages and advantages of
process costing
Advantages of process costing.
1. The calculation of average cost is very easy since the
homogeneous products are produced.
2. The cost is calculated periodically.
3. Less clerical efforts and costs are enough to calculate
cost.
4. Effective control can be exercised on production very
easily.
Disadvantages of Process Costing
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 emergence of joint products may present the
problem of apportionment of joint costs.
3. The calculated cost per unit may be a misleading if the
apportionment of joint costs is not properly done.
4.The process costing system does not consider the
efforts of individual workers or supervisors.

8. 1. The whole factory operation is divided into several
operations or production centers, each performing
standard operations.
2. All the items of process costing i.e. materials, labour
and overheads are collected in process
wise.
3. The records are maintained in process wise as the
number of units produced, the total costs incurred and
the cost per unit.
4. The total cost of one process is transferred to next
process along with the number of units transferred to
next process for further processing.
5. The cost per unit is calculated by dividing the number
of units produced in a process into the total costs
incurred for processing the same number of units in a
specified period.
4. Explain the principles of process costing

9. 5. Differentiate between job costing and
process costing
Job Costing Process Costing
1. Production is carried on
according to specific orders.
Products being homogeneous;
the production goes on
continuously.
2. Costs are determined for
each job separately.
Costs for each process are
determined or computed for a
specific period.
3. Each job is separate. There
is no relationship between two
jobs.
Products have no individual
identity since they are produced
continuously.
4. The unit cost of a job is
computed with the help of total
cost of a job divided by the
number of units produced in
the job.
The average cost per unit of a
process is calculated with the
help of total cost of the
concerned process divided by the
number of units produced in the
concerned process for a specific
period.
5. The cost is calculated only Costs are calculated at the end of

10. 6. There is no transfer of
materials from one job to
another unless there is any
surplus.
There is a transfer of materials
as work in progress or
incomplete materials from one
process to another process.
7. The costs of one job cannot
be transferred to another job.
The costs of one process is
transferred to another process.
8. The finished product of one
job may or may not be raw
materials to another job.
The finished product of one
process is a raw material to next
process.
9. There may or may not be
work in progress at the
beginning or end of the
accounting period.
There is always some work in
process at the beginning as well
as at the end of the accounting
period.
10. Production control
technique cannot be exercised
under job costing system.
Production control technique
can be exercised under process
costing system.

11. 11. There is no continuous
production.
There is a continuous production.
12. It requires more forms and
details regarding the
utilization of material and
labour
It required few forms and fewer
details with regard to utilization
of material and labour
13. Product was handed over
to the customer soon after the
completion of job.
Products are handover to the
stores department and kept as
stock.
14. Only one work-in-progress
account is maintained.
Work-in-progress account is
maintained separately for each
process.
15. Manufacturing costs are
accumulated for particular
job.
Manufacturing costs are
accumulated for entire process
and there is no possibility of
determination of manufacturing
cost to each unit separately in a
process.
16. Job order is characterized
as labour intensive.
Process costing is considered a
capital intensive.

12. 6. Explain the procedure of process costing
There are four basic steps in accounting for
Process cost:
1.Summarize the flow of physical units of
output.
2.Compute output in terms of equivalent units.
3.Summarize total costs to account for and
Compute equivalent unit costs.
4.Assign total costs to units completed and to
units in ending work in process inventory

13. 7. Define a) Nominal wages b) Real wages
c) Fair wages d) Minimum wages
a) Nominal wages :- It is the amount of money paid to a
worker in cash for the efforts put in by him in an
industry and no other advantage to the worker is
made. This is also called money wage. The rates of
wages at different places may differ from each other
as per the availability of the workers and necessities
of life. The amount of payment is so calculated that
every worker should get actual worth of his services.
b) Real wages:-. It refers to the amount of necessaries,
comforts, luxuries and cash payment which a worker
gets in return for his effort and work .

14. For example, uniforms, essential commodities,
housing with free or subsidized water and electric
supplies, conveyance and other such facilities are
generally provided by the factory, in addition to the
money in cash. If all this amount as a whole is
considered for wages, these become “Real Wages‘
c) Fair wages:-. It is actually the wage which must be
fair for the work of a worker and should provide him
with other necessities of life in addition to food for his
family.
The rates for the fair wages range between the
minimum wage and living wage
Living Wages. When the rates of wages are such that
they can meet some of the requirements of family, like
Education, Food, Clothes and some insurance against

15. d) Minimum wages:- Minimum wage is the wage,
which provides not only for bare subsistence but
something more than this. It must be sufficient for the
preservation of the efficiency of the worker.
It must also provide for some measure of education,
medical requirements and other amenities of life.
Thus in fixing a minimum wage we have to take into
consideration the cost of living. To ensure this in
India, Mini mum Wages Act 1948, has been in force
according to which wages are fixed by the
State/Central Government and this has forced
employers to give not less than this fixed minimum
wage to any of the workers.

16. 8. Explain the concept of incentives.
It is something that encourages a worker to put in
more productive efforts voluntarily. Mostly, workers
are not willing to exert themselves to produce
anywhere near their full capacity unless their interest
in work is created by some kind of reward. This is
called 'incentive'.
The incentive is a kind of monetary reward which is
closely related to the performance of a worker,
resulting increase in wages corresponding to an
increase in output
Types of Incentives
(a) Financial Incentives.
(b) Non-financial Incentives.

17. (a) Financial Incentives.
If an employer finds that he will be earning an
extra profit of Rs. 25, if a particular work is
finished in 5 hours less than the prescribed time.
Now, if the workman is promised an extra
payment of Rs. 10. This extra payment is known
as incentive and is in the first instance calculated
in terms of time in hours of employment.
(b) Non-financial Incentives.
Non-financial incentives are the types of rewards
that are not a part of an employee’s pay. Typically,
they cost the company little or no money, yet
carry significant weight. Incentives of this nature
are particularly effective for workers who are
comfortable with their salaries or have been in
the position for a long time.

18. 9. Explain different types of
budgetIt is a tool of management for planning its future
activitie: including estimation of sales,
expenditure and production etc. It is done for
indicating the expected results of the business
and the possible future line of action to be
followed for the attainment of such results.
Expected results are projected in financial terms
or in other numerical terms like units of products,
man hours, machine hours: etc. Budgeting or
Budget making may be defined “as a forecast of
programme of operations based on estimated
operating efficiency"

19. Types of Budget

20. 10. Explain briefly: book value-Net Present Value-
Work in progress- Gross Domestic Product
(GDP)-balance sheet
Book value:- Book value refers to the total
amount a company would be worth if it liquidated its
assets and paid back all its liabilities. Book value
can also represent the value of a particular asset on
the company's balance sheet after taking
accumulated depreciation into account.
Net Present Value-Work:- Net present value (NPV)
is the difference between the present value of cash
inflows and the present value of cash outflows over a
period of time. NPV is used in capital budgeting and
investment planning to analyze the profitability of a
projected investment or project.

21. Work in progress:- The term work-in-progress (WIP) is
a production and supply-chain management term
describing partially finished goods awaiting completion.
OR
Since production is a continuous activity, there may be
some incomplete production at the end of an accounting
period. Incomplete units mean those units on which
percentage of completion with regular to all elements of
cost (i.e. material, labour and overhead) is not 100%. Such
incomplete production units are known as Work-in-
Progress. Such Work-in-Progress is valued in terms of
equivalent or effective production units.
Gross Domestic Product (GDP):- Gross Domestic
Product (GDP) is the total monetary or market value of all
the finished goods and services produced within a
country's borders in a specific time period. As a broad
measure of overall domestic production, it functions as a

22. Balance sheet :-Financial statements are a company's
window to the world. They tell the story of how
successfully or unsuccessfully a company has performed
for any given period. The three most common financial
statements are the income statement, balance sheet, and
statement of cash flows. Of the three statements, the
balance sheet is the one that gives the clearest picture of
the financial position of a company. The balance sheet is
made up of three different sections: assets, liabilities,
and stockholders equity. Each of these sections is further
divided down into subsections.

23. LIABILITIES Schedule Amount
Current
year
Amount
Previous
Year
ASSETS Schedule Amount
Current
year
Amount
Previous
Year
Capital Fund Fixed Assets
Opening Balance
Geants received from Govt.
of India
(a)SSA
(b)NPEGEL & KGBV
Grants received from State
Govt.
(a)SSA
(b)NPEGEL & KGBV
Civil Works :
I)Opening Bal
II)Add transferred during the year
Total
Computer
Furniture
Vehicle
Equipment
Total Current Assets
Advances outstanding :
(a) Civil Works
i) Op. bal
ii) Advances during the year
Total
Less Transferred to Civil works
Net Balance
(b) Others
Less Excess of Expenditure
over income transferred to
Capital Fund
Net Capital Fund Balances at districts:
(a)Cash at Bank
(b)Cash in Hand
(c)Balances at School
Advances repayable Closing Balance at SPO
(a)Cash in Hand
(b)Cash at Bank
Current Liabilities
Total Total
FORMAT OF BALANCE
SHEET

24. 11.Explain manual tendering
A tender is a submission made by a prospective
supplier in response to an invitation to tender. It makes
an offer for the supply of goods or services. As
procurement routes have become more complex,
tenders may be sought for a wide range of goods and
services (for example, on a construction management
contract the works are constructed by a number of
different trade contractors each contracted to the client)
and contractors may take on additional functions such
as design and management.
The 4 main types of tenders are:
1.Open tender
2.Selective tender
3.Negotiated tender
4.Single-stage and two-stage tender

25. Open tender
Open tendering is the main tendering procedures
employed by both the government and private
sector. Open tendering allows anyone to submit a
tender to supply the goods or services required and
offers an equal opportunity to any organisation to
submit a tender. This type of tender is most common
for the engineering and construction industry.
Open tendering provides the greatest competition
among suppliers and has the advantage of creating
opportunities for new or emerging suppliers to try to
secure work. However, not all those who bid may be
suitable for the contract and more time is required to
evaluate the tenders.

26. Selective tender
Selective tendering only allows suppliers to submit
tenders by invitation. These suppliers are those who
are known by their track record to be suitable for a
contract of that size, nature and complexity required.
Selective tendering gives clients greater confidence
that their requirements will be satisfied. It may be
particularly appropriate for specialist or complex
contracts, or contracts where there are only a few
suitable firms. However, it can exclude smaller
suppliers or those trying to establish themselves in a
new market.

27. Negotiated tender
Negotiated tenders are extensively used in the
engineering and construction industry commencing
from tendering till dispute resolutions. Negotiating
with a single supplier may be appropriate for highly
specialist contracts, or for extending the scope of an
existing contract. Costs are reduced and allows early
contractor involvement. Since the contractor is part of
the project team at a very stage of the project, this
results in better communication and information flow.

28. Single-stage and two-stage tender
Single-stage tendering is used when all the
information necessary to calculate a realistic price is
available when tendering commences. An invitation to
tender is issued to prospective suppliers, tenders are
prepared and returned, a preferred tenderer is
selected and following negotiations they may be
appointed.
Two-stage tendering is used to allow early
appointment of a supplier, prior to the completion of
all the information required to enable them to offer a
fixed price. In the first stage, a limited appointment is
agreed to allow work to begin and in the second stage
a fixed price is negotiated for the contract.

29. 12. Explain E-tendering
E-tendering system is the process of procuring
goods,works or services, by the government
organizations or corporations such as NHAI, Indian
railways, SAIL, State/Central govt ministries, by
releasing their requirement document in the form of e-
tender notice and inviting relevant interested parties
to bid for the same. As it is e-tendering, the tender is
released digitally i.e. on the company website or e-
procurement portal etc.
To break it down and simplify this further, typically a
bidder goes through the below e-tendering process –
1. Sign up on a tender website of your preference, and
look for tenders according to your preferred location
and industry keywords.

30. 2. Before bidding develop your response strategy, by
going through the tender notice extremely carefully.
Note down all the details, and make a checklist for list
of supporting documents required
3. Review recent awarded contacts and research your
buyer
4. Write a compelling bid response document, based
on your above research.
5. Understand the payment terms to make sure you
are aware of the payment schedule specified.
Government payment schedules will vary from
department to department and procurement to
procurement.You may not get paid as soon as the job
is finished or goods are delivered. If you require
payment different to that specified, you should detail
this in your offer.
6. Find referees who know your business and can
attest for your work past projects of success.

31. 7.Make sure you check your proposal carefully before
submitting it.
8. Submit your bid well in time, ensuring you don’t
miss the submission deadline
9. Always request a debriefing on the tender after the
process, especially if your bid is unsuccessful.