Process costing

COST MANAGEMENT

1. Process COSTing KALPITA VARMA 44 PALLAVI ZORE 63 SAYLI PANDIT 29 AKANKSHA KADAM 18 TANVI CHAVAN 06

2. INTRODUCTION Process costing is a special BRANCH of costing used by the manufacturing industries . Who are involved in converting the RAW MATERIAL into the FINISHED PRODUCT. Such work of conversation is done step by step , each step called “a process” . Process costing is a method of allocating manufacturing cost to products to determine an average cost per unit.

3. WHAT IS PROCESS COSTING ?? Process costing is a method of costing used to find out the cost of the product in each process. It is used to calculate cost per unit of product is ascertained at each stage of production. It is a form of operations costing. Process costing is used in industries like chemicals, textiles, steel, rubber, sugar, shoes, petrol, etc.

4. OVERVIEW OF PROCESS COSTING SYSTEMS

5. EQUIVALENT PRODUCTION UNITS

6. PURPOSE OF PROCESS COSTING To control the process. To know cumulative cost. To calculate the value of inventory of raw material, work-in- progress and finished goods at the end of the period. It is also used to assign price of the products.

7. MANAGERIAL CONTROL STANDARD PROCESSES AND PRODUCTS ESTIMATES DIFFICULT TO CALCULATE AVERAGE COST.

8. TERMS IN PROCESS COSTING NORMAL LOSS Normal loss is inherent in the processing operation and which cannot be avoided. Therefore it is also called as Unavoidable Loss. ABNORMAL LOSS If the actual loss is greater than normal loss, then such excess loss over and above the normal loss is termed as abnormal loss. ABNORMAL GAIN If the actual loss is less than the normal loss then such different in the actual and normal loss is termed as abnormal gains.

9. ACCOUNTING FOR LOSSES AND GAINS IN PROCESS COSTING. NATURE OF LOSSES Normal loss Abnormal loss NATURE OF GAINS Abnormal gain

10. PROFOMA OF PROCESS COSTING

11. Cost per unit = total of debit side amount-total of credit side amount total of debit side units – total of credit side units

12. Q) The product of manufacturing concern passes through two processes A and B and then to finished stock . It is ascertained that in each process 5% of total weight is lost and 10% is scrap which from process A and B realize Rs80 and Rs200 per tonns respectively. The following are the figures relating to both the processes - Particulars Process A Process B Material ( tonns ) 1000 70 Cost per tone (Rs) 125 200 Wages (Rs) 28000 10000 Manufacturing Exp (Rs) 8000 5250 Output (tone) 830 780 Prepare process cost A/Cs showing cost per tone of each process .There was no stock of work-in-process in any process.

13. Solution : Note : Units = Tonns particulars Units CPU Amounts particulars units CPU Amounts To material 1000 125 125000 By loss of weight(5%) 50 - - To wages 28000 By normal loss(10%) 100 80 8000 To manufacturing exp. 8000 By abnormal loss 20 180 3600 By output transferred to process B 830 180 149400 1000 161000 1000 161000 Process “ A ” A/C Dr. Cr.

14. particulars units CPU amount particulars units CPU amount To input transferred from process A 830 180 149400 By loss of weight(5%) 45 - - To material 70 200 14000 By normal loss(10%) 90 200 18000 To wages 10000 By out put transferred to finished goods 780 210 163800 To manufacturing exp. 5250 To abnormal gains 15 210 3150 915 181800 915 181800 Process “B ” A/c Dr. Cr.

15. Particulars Units CPU amount Particulars units CPU amount To output Transferred from process B A/C 780 210 163800 By balance c/d 780 210 163800 780 163800 780 163800 Finished Stock A/C Dr. Cr. Particulars Units CPU Amount Particulars Units CPU Amount To Process A A/C 20 180 3600 By Sale of Scrap A/C 20 80 1600 By Loss transfer to Costing P & L A/C 2000 20 3600 20 3600 Abnormal loss A/C

16. Lastly the process costing system provides the mechanism to survive in a today’s price competing world. It facilitates the effective pricing. When the cost of achieving good quality increases, cost of poor quality decreases automatically