The document discusses process costing, which is a method used to account for the costs of continuous production processes. It defines process costing as dealing with mass production of homogeneous units that pass through a series of production steps or processes. Key characteristics of process costing include continuous production, standardized processes, and accumulating costs by process. The document provides examples of industries that typically use process costing and compares it to job costing. It also defines normal and abnormal losses that can occur in production processes.

1. PROCESS COSTING
Dr. NGPASC
COIMBATORE | INDIA
Dr. N.G.P. ARTS AND SCIENCE COLLEGE
(An Autonomous Institution, Affiliated to Bharathiar University, Coimbatore)
Approved by Government of Tamil Nadu and Accredited by NAAC with 'A' Grade (2nd Cycle)
Dr. N.G.P.- Kalapatti Road, Coimbatore-641048, Tamil Nadu, India
Web: www.drngpasc.ac.in | Email: info@drngpasc.ac.in | Phone: +91-422-2369100
RAJAKRISHNAN M
Assistant Professor in Commerce CA

2. Dr. NGPASC
COIMBATORE | INDIA
PROCESS ?

3. Dr. NGPASC
COIMBATORE | INDIA
PROCESS ?

4. Dr. NGPASC
COIMBATORE | INDIA
PROCESS ?

5. Dr. NGPASC
COIMBATORE | INDIA
PROCESS ?
MEANING:
Charles T. Horngren says “Process Costing deals
with the mass production of like units usually pass
in continuous fashion through a series of
production steps called operations or processes.”

6. Dr. NGPASC
COIMBATORE | INDIA
Features of Process Costing
The production
is continuous
The product is
homogeneous
The process is
standardized
The output of
one process
becomes the
raw material of
another
process
The output of
the last process
is transferred
to finished
stock

7. Dr. NGPASC
COIMBATORE | INDIA
Features of Process Costing
Costs are collected
process-wise
Both direct and
indirect costs are
accumulated in each
process
If there is a stock of
semi-finished goods, it
is expressed in terms
of equivalent units
The total cost of each
process is divided by
the normal output of
that process to find
out the cost per unit of
that process.

8. Dr. NGPASC
COIMBATORE | INDIA
Process Costing - Types of industries
Chemical
works,
textile,
weaving,
spinning,
etc.
Gas,
electricity,
water, ice,
steel,
paper,
cement,
rubber,
bread, etc.
Bakeries,
confection
ery, flour
mills,
canners,
manufactu
rers of
medicine,
fabricators,
etc.
Foundries,
laundries,
dyers,
cleaners,
etc.
Spare
parts,
fittings,
equipment
, fertilizer
industries,
etc.
Box
making,
paper
mills,
biscuit
factories,
oil refining,
milk dairy,
meat
product
factory.

9. Dr. NGPASC
COIMBATORE | INDIA
Advantages
Costs are be computed periodically at the end of a particular period
It is simple and involves less clerical work than job costing
It is easy to allocate the expenses to processes to have accurate costs.
Use of standard costing systems in very effective in process costing
situations.
Process costing helps in the preparation of tender quotations.
Since cost data is available for each process, operation and department,
good managerial control is possible.

10. Dr. NGPASC
COIMBATORE | INDIA
Job costing and process costing
Basis of Distinction Job order costing Process costing
Specific order Performed against specific
orders
Production is contentious
Nature Each job may be different. The product is homogeneous
and Standardized.
Cost determination Cost is determined for each
job separately.
Costs are complied with for
each process for the
department on a time basis,
i.e., for a given accounting
period.

11. Dr. NGPASC
COIMBATORE | INDIA
Job costing and process costing
Basis of Distinction Job order costing Process costing
Cost calculations Cost complies when a job is
completed.
Cost is calculated at the end
of the cost period.
Control Proper control is
comparatively difficult as each
product unit is different, and
the production is not
continuous.
Proper control is
comparatively easier as the
production is standardized
and is more suitable.
Transfer There is usually not transfer
from one job to another
unless there is some surplus
work.
The output of one process is
transferred to another
process as input.

12. Dr. NGPASC
COIMBATORE | INDIA
Job costing and process costing
Basis of Distinction Job order costing Process costing
Work-in-progress There may or may not be
work-in-progress.
There is always some work-
in-progress because of
continuous production.
Suitability Suitable to industries where
production is intermittent,
and customer orders can be
identified in the value of
production.
Suitable where goods are
made for stock and
production is continuous.

13. Dr. NGPASC
COIMBATORE | INDIA
Normal Loss
•This loss of
units is
categorized as
normal and
abnormal loss.
Shrinkage, seepage,
evaporation, weight
loss and use of
inefficient
equipment often
cause a loss or
spoilage of units in
processing
departments.

14. Dr. NGPASC
COIMBATORE | INDIA
Normal Loss
The 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.
This loss cannot be avoided under
normal and efficient production
environment and is considered
within the normal or acceptable
tolerance limit for machines and
human errors.

15. Dr. NGPASC
COIMBATORE | INDIA
Abnormal Loss
Loss or spoilage of units in a
processing department that should
not occur under normal and efficient
working conditions.
The abnormal loss signifies that the
production operation has one or more
serious issues that need to be
identified and fixed quickly.
Major factors that may contribute
towards the occurrence of abnormal
loss in a production process include
use of faulty equipment, unskilled or
untrained workers, use of substandard
raw materials, improper supervision,
frequent electricity breakdown and
working conditions with a lot of room
for improvements etc.

16. Dr. NGPASC
COIMBATORE | INDIA
Difference between normal and abnormal loss
The core factor considered for differentiating between normal and abnormal loss or
spoilage is the degree of controllability. The degree of controllability in case of a
normal loss is much smaller than in case of an abnormal loss.
Normal loss is referred to as uncontrollable because it is inherently attached to
certain production processes and can’t be avoided even under most efficient working
conditions. Examples of such losses include weight loss, evaporation and shrinkage of
materials. We can’t do too much to stop these losses from occurring as the degree of
controllability is usually very small to zero in case of normal losses.
The abnormal loss, on the other hand, is referred to as controllable loss because it
can be avoided under normal and efficient working conditions. It is essentially an
unnecessary loss because it occurs due to carelessness, use of low quality materials,
use of inefficient or faulty machines in manufacturing process and other similar
factors that are controllable in nature.

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