WHAT IS PROCESS

COSTING ?

 It is a form of operations costing

which is used where standardized
goods are produced in large volumes
with continuous production flow

 Also used in the assembly type

industry which manufactures items
such as typewriters, automobiles,
airplanes
CHARACTERISTICS

• Manufacturing costs are accumulated for each production department or

Cost process.
Collection

• Manufacturing costs are accumulated by department or process for specific

time periods, say a month,.
Time Period • The process costing is designed to measure units produced during this time
Assumption period

• Each process or department has its own account and records the
Separate processing costs incurred by the department .
Ledger

• The most important point is that product costing under process costing
is an averaging process. The unit cost is obtained by accumulating all
Averaging manufacturing costs and dividing it by units produced
Process
 • Under processing industries, the production is continuous and emphasis
is on uniform or standardized product.
Homogeneous
Product

• Completed units and their associated costs are transferred to next

process if something is still to be done on those units. Completed goods
Transfer To are transferred to Finished goods if nothing is to be done.
Finished
Goods

• Cost of lost or spoiled units is added to the cost of good units completed,
thus increasing the average cost per unit
Cost Of
Spoiled Units
PARAMETERS
All materials required for production are issued
MATERIALS to the first process where after processing they
are passed to the next process and so on.

It is incurred on the debit side of the

LABOURS process A/c and wages are distributed
to each process on the basis of time
spent.
Any items which can be directly attributed to a
Direct Expenses process are debited to the relative process
account

Factory Overheads Expenses which are not direct are proportioned

on basis of their absorption
STEPS FOR PROCESS COSTING

Costs are accumulated by each

process.

Each process maintains its own

account.

The process A/c is debited with costs

incurred and credited with goods completed
& transferred to other process.

Goods once completed will be transferred to

finished goods accounts.

Goods once sold, the amount will be

transferred to the COGS A/c.
 PROCESS A PROCESS B

Activity Rs. Activity Rs. Activity Rs. Activity Rs.

Material 500 Process B 800 Material 800 Process C 1100

Labour 400 Labour 50
Overheads 200 Overheads 100

TOTAL 800 TOTAL 800 TOTAL 1100 TOTAL 1100

FINISHED PROCESS C
ActivityGOODS
Rs Activity Rs. Activity Rs Activity Rs.

Process C 1500 COGS 1300 Process B 1100 FG 1500

BAL c/d 200 Material 80
Labour 110
Overhead 210
TOTAL 1500 TOTAL 1500 TOTAL 1500 TOTAL 1500
ACCOUNTING OF SCRAP & LOSSES

Damaged goods can be sold as scrap.

Any revenue arising from it should be treated as reduction in costs

instead of increase in sales revenue

In a Production process, losses are inherent and unavoidable

There are two nature of losses namely Normal and Abnormal

 ACCOUNTING TREATMENTS

TRANSACTIONS ACCOUNTING TREATMENT

Normal Loss Losses within expected level

Abnormal Loss Excess loss over expected level

Abnormal Gain Gain since actual loss is less than

expected loss

TRANSACTIONS ACCOUNTING
TREATMENT
Scrap value of Normal Loss Reducing material cost

Scrap value of Abnormal Loss Reducing cost of abnormal

loss
Scrap value of Abnormal Gain Gain since actual units sold in
scrap less than the scrap value
of normal loss
 Jatin Panchal – 520

 Trasha Padiyar – 518

 Siddharth Mehra – 504

 Payal Mehta – 506

 Smita Mehta – 507

 Hardik Modi – 511

 Tejas Shah – 537

 Nishant Shakya – 538

 Ajay Shetty – 539

 Siddharth Sudarsan – 544

 Kiran Tambe – 547

 Shyaam Taneje – 548

 Divya Thakker – 550

 Paras Gala – 561

 Rajesh Yadav – 563