A presentation on process costing

This power point presentation related to process costing. which is useful to students who studying B.com, BBA,M.COM MBA etc.
It involves short notes on definition of process costing,its features,applications,difference between process costing and job costing, advantages and disadvantageous of process costing, procedure of process costing,format of process account, process losses and abnormal gain.

1. PROCESS COSTING A PRESENTATION ON COST MANAGEMENT PRESENTED TO MS. JOBY JACOB PRESENTED BY PRIYANKA V P

2. INTRODUCTION

3. 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”.

4. 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.

5. 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.

6. 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.

7. 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.

8. DISADVANTAGES OF PROCESS COSTING 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.

9. 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.

10. PREPARATION OF PROCESS ACCOUNT Simple process account. Process costing with normal process losses. Process costing with abnormal process losses. Process costing with process gains. Valuation of work in progress. Inter process profits. Joint product and by-product costing.

11. FORMAT OF PROCESS ACCOUNT

12. 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.

13. 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

14. DIFFERENCE BETWEEN NORMAL LOSS AND ABNORMAL 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.

15. 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

16. 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

17. CONCLUSION

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