Process costing is used for mass production involving continuous processes. It determines average costs per unit by tracking costs through each stage of production. There are two main methods: first-in, first-out (FIFO) treats opening work in progress separately from current production, while weighted average cost combines opening and current production into one batch with an average cost per unit. Equivalent units of production are calculated differently under each method to determine unit costs. Process accounts track costs and units at each stage to calculate costs of goods completed and transferred.

1. 1

2. 2
Process Costing
Presented to:
Sir, Rizwaan
Presented by:
Abu Sufiyan
K1F16MCOM0016
Punjab Group of Commerce of Kamoke

3. 3
Process costing
Process costing is adopted when there is
mass production through a sequence of
several processes
Features
The output is homogeneous.
Production is continuous.
Its main object is to provide an average
cost of product.
When product is produced thorough
different process, the output of each
process is transfer to next process.

4. Examples
Example include
chemical, flour and glass
manufacturing etc.
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5. 5
Process 1
Process 2
Process 3
Direct material
Direct labour
overheads
Finished goods Cost of goods sold
Direct material
Direct labour
overheads
Direct material
Direct labour
overheads

6. Process Costing vs. Job Costing
Job Costing
Direct materials,
direct labor, and
factory overhead
Finished
goods
Cost of
goods sold
Job 121
Job 122
Job 123
Process Costing
Direct materials,
direct labor, and
factory overhead
Process A
Process B
Process C
Finished
goods
Cost of
goods sold

7. 7
First in First out
Weighted average cost
Two methods of cost flows in
process costing

8. 8
First-in-first-out
method
Weighted average
method
The opening work in
progress is the first
group of units to be
processed and
completed during the
current period
The opening work in
progress is merged with
the production of the
current period to form
one batch of production
It separates the cost
computations of the
opening work in progress
and the current period
production
The average cost per
unit of the opening work
in progress and the
current period
production is the same

9. 9
First-in-first-out
method
Weighted average
method
Cost per unit
= Current cost
EUP
Cost per unit
= Cost of OWIP + Current Cost
EUP

10. 10
Equivalent units of
production

11. For Average Method:
=Unit Completed & Transferred+(Unit
Still in Process*Completion Stage)
For Fifo Method:
Unit completed & transferred ***
Less Begning W.I.P. ***
Unit Completed during this Period ***
Add Begning W.I.P ***
Ending W.I.P ***11

12. 12
Equivalent units of production
Unit Cost = Sum of production costs
Production quantity

13. 13
Process account
Units $ Units $
Opening WIP 1000 7200
Materials 20000 30000
Conversion 52200
Finished goods 16000 74360
Closing WIP 3000 6240
21000 89400 21000 89400
Abnormal
normal loss 2000 8800