The document explains process costing, a method where costs are averaged over units produced in continuous and standardized production. It contrasts process costing with job costing, highlighting differences in production nature, cost accumulation, and work in progress. Advantages include easier cost computation and efficiency measurement, while disadvantages mention challenges in valuing work in progress and accuracy of average costs.

2. PRESENTED TO
MS. JOBY JACOB
PRESENTED BY
PRIYANKA V P

3. INTRODUCTION

4. DEFINITION
• According to Kohler, ”Process costing is a method of
costing whereby costs are charged to processes or
operations and averaged over units produced”
• According to CIMA 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”.

5.  Continuous production.
 Homogenous and standardized. products
 Different stages of production.
 Products are not distinguishable.
 For each process, separate account is
maintained.
 Normal and abnormal losses may arise in the
process.

6.  Where production is standardized.
 Where production is continuous and undertaken
on a large scale.
 Where it is not possible to distinguish the product
during the processing stage.
 When the output of one process becomes the
input of next process.
 When the output is uniform and all units are
exactly identical during one or more processes.

7. DIFFERENCE BETWEEN JOB COSTING AND PROCESS COSTING
Job Costing
• Production is against
customers specific orders.
• Production is not for stock.
• Each job is different from
others.
• There is no regular transfer of
cost from one job to another.
• Cost are accumulated for
each job.
• Work in progress may or may
not exist.
• Cost is ascertained when job
is complete.
Process Costing
• Production is continuous.
• Production is for stock.
• All units produced are
homogenous.
• There is always transfer of
costs of one process to
subsequent processes.
• Costs are accumulated for
each process for a period.
• Work in progress always exist.
• Cost is ascertained at the end
of cost period.

8. ADVANTAGES OF PROCESS COSTING
 The cost of each process be can easily computed.
 The products are homogenous. Hence, it is easy to
compute average cost.
 It is possible to ascertain the cost periodically at short
intervals.
 The accounting system is simpler and is less expensive
compared to job costing.
 It helps to measure the efficiency of each process.
 It is easy to exercise effective control over production.

9. DISADVANTAGESOF PROCESSCOSTING
 It is difficult to value work in progress.
 It is not easy to value losses, wastes, scraps etc.
 It is difficult to apportion total cost among joint products
and by products.
 Process costs are only average costs. These are not
accurate.
 Process costs are only historical. These are not of much
use of effective control.
 When more than one product is produced, calculation of
cost per unit becomes difficult.

10. PROCEDURE OF PROCESS COSTING
 Separate process account is opened for each process.
 Besides 'Particulars column’, two columns are provided on both sides
of the process account-units(quantity) and amount(Rupees).
 All the expenses are debited in the respective process account.
 Wastage, sale of scrap, by products etc are recorded on the credit
side of the process account.
 The difference between debit side and credit side shows the cost of
production and output of that particular process which is transferred to
the next process.
 The cost per unit in every process is calculated by dividing the net
cost by the output.
 The output of last process is transferred to the finished stock
account.
 Incomplete units at the end of each period in every process is
converted in terms of completed units.

11. PREPARATIONOF PROCESS ACCOUNT
1. Simple process account.
2. Process costing with normal process losses.
3. Process costing with abnormal process losses.
4. Process costing with process gains.
5. Valuation of work in progress.
6. Inter process profits.
7. Joint product and by-product costing.

12. FORMAT OF PROCESS ACCOUNT

13. PROCESS LOSSES
Process loss is that quantity lost in the process by way of waste,
scrap, or spoilage. The process loss is classified into two;
1. Normal process loss and
2. Abnormal process loss
NORMAL PROCESS LOSS
Normal loss is the loss which is unavoidable and it is arises under
normal conditions. It is calculated as certain percentage of input.
Normal loss in weight = Opening stock + Output from the
preceding process - (Output of the concerned process + Closing stock)
SCRAP
Sometimes normal loss may have some realizable value. Then the
loss is called scrap.

14. ABNORMAL LOSS
When actual loss in the process is greater than the estimated
normal loss, it is a case of abnormal loss. Thus, loss over and above
normal loss or loss beyond normal loss is called abnormal loss.
Abnormal loss = Actual wastage - Normal wastage
or
Normal output - Actual output
Value of A L = Normal cost of normal output * Units of AL
Normal output
Value of normal output = Total expenditure - sale proceeds of scrap
Normal output = Input – Units of normal loss

15. DIFFERENCEBETWEENNORMAL LOSSANDABNORMAL LOSS
Normal Loss
• It is unavoidable.
• It is of recurring nature.
• It can be estimated in advance.
• It is found as input * Expected
percentage of normal loss.
• If it waste, it is recorded in the
quantity column on the credit
of the process A/C.
If it is scrap, the sale of scrap is
recorded in the quantity
column and value column on
the credit of Process A/C.
Abnormal Loss
• It is avoidable.
• It is accidental nature.
• It can not be estimated in
advance.
• It is found as Input – Normal
loss- Actual output.
• The realizable value of scrap is
credited to abnormal loss A/C.

16. • Its cost is treated as part of
cost of product and is
absorbed by output.
• It is a non-insurable loss
• Its cost is not treated as part
of cost of product and is
charged to Costing P/L A/C
• It is an insurable loss

17. ABNORMAL GAIN
Sometime actual loss or wastage in a process is less than expected
normal loss. In this case the difference between actual loss and
expected loss is known as abnormal gain or abnormal effective
Value of A G = Normal cost of normal output * Units of A G
Normal output
Normal cost of normal output = Total expenditure- sale of scrap
Normal output = Input( units) – Normal loss(units)
Units of A G = Normal loss – actual loss
or
Actual output – normal output

18. CONCLUSION

19. BIBLIOGRAPHY
Cost Management-A Vinod and Dr K K Asokan, Calicut
University Publications
 WWW.futureaccountant .com
 WWW.wikipedia.com