2. MEANING OF PROCESS COSTING..
Process costing is a method of costing applied to
industries where the material has to pass through two or
more processes for being converted into a finished
product. This method is used in the manufactured of
chemical product, soap, vegetables oil, paints, varnishes,
etc where the production is continuous and the product
has to pass from one process to the other until
completion.
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Neha Pandey (Asst. Prof.)
3. ESSENTIAL CHARACTERISTICS OF PROCESS
COSTING...
1. The production is continuous and the final product is the result of
a sequence of processes.
2. The product is standardised and homogeneous.
3. The cost per unit produced is the average cost which is calculated
by dividing the total process cost by the number of unit produced.
4. The finished product of each but last process becomes the raw
material for the next process in sequence and that of the last
process is transferred to the finished good stock.
5. The sequence of operation or proesses is specific and
predetermined.
3Neha Pandey (Asst. Prof.)
4. APPLICATION OF PROCESS COSTING..
A. Manufacturing Industries :- Iron and steel, cement,
paper, rubber, automobile plant, ice, paints industries,
etc.
B. Chemical Industries :- Chemical, perfumery, soap, oil,
medicines,etc.
C. Mining :- Mineral oil, coal, sulphur, gold, iron, inc, gas,
etc.
D. Public Utility Works :- Electricity generation and
distrubution, water supply, gas supply, etc.
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Neha Pandey (Asst. Prof.)
5. GENERAL PRINCIPLES...
๏ Material, wages, and overheads are collected according
to processes or operations in a period.
๏ The record of each process is so maintained that the
output waste and scrap of each may be correctly
ascertained.
๏ The total cost of each process is divided by the units
manufactured in that process, and thus the cost unit of
process is computed.
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Neha Pandey (Asst. Prof.)
6. PROCEDURES...
๏ The factory is divided into a number of processes an
account is maintained for each process.
๏ Each process account is debited with material cost,
labour cost, direct expenses and overheads allocated or
apportioned to the process.
๏ The output of a process is transferred to the next process
in sequence. In other words, finished output of one
process become input of the next process.
๏ The finished output of the last process is transferred to
the Finished Goods Account.
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Neha Pandey (Asst. Prof.)
7. WASTAGE AND ITS TREATMENT:-
๏ The term wastage in the wider usage included waste, scrap and
spoilage which go to reduce the quantity content of the product.
The wastage is two type (i) Normal wastage (ii) Abnormal
wastage:-
๏ Normal wastage:- This wastage is one which is incidental to
production and is within standard limit. while fixing the standard,
a study of the past performance and wastage in the immediate
previous year is necessary.
๏ Treatment in account:- The normal wastage reduces the
quantity of output. As this loss is borne by the production, the
cost pre unit of output goes up to that extent. If there is any sale
able scrap, it is sold and the realised amt is credited to the
process account. If the wastage does not fetch any value, the
quantity of wastage is recorded in the quantity column and nil fig
is shown in the amt column.
7Neha Pandey (Asst. Prof.)
8. ๏ Abnormal wastage:- This wastage is one which is in excess of
the normal wastage, arising due to abnormal causes or due to
unforeseen factors. A cause which is not common to production, or
the occurrence of which is not to be generally experienced in whe
ordinary course of production like defective material, sickness of
machine, natural calamity, fire.
๏ Treatment in account:- The loss account of abnormal wastage is
not borne by production, but by Profit and Loss Account.
Abnormal Wastage A/c is credited with the cost of abnormal
wastage. If this wastage is sold in the market, Abnormal Wastage
A/c is credited with the realised price and the balance is
transferred to the P & L A/c.
8Neha Pandey (Asst. Prof.)
