Process Costing

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.

Overview of Process Costing Systems

Features of process costing

A separate process account is prepared for each process. Where all Inputs and Expenses are recorded in the DEBIT SIDE and Losses and output are CREDITED.

The output of one process becomes the input of the next

process and so on until the finished product is obtained.

When the goods are sold, the amount will be transferred to the cost of goods sold account .

When the goods are completed, they will be transferred to finished goods account.

Accounting For Losses and Gains In Process Costing

Nature

of losses

Input units (-)Normal Loss Expected Output (-)Actual output

X X X X

Normal loss Abnormal loss Nature of Gain Abnormal Gain

Abnormal Loss

+X

Input units (-)Normal Loss Expected Output (-)Actual output Abnormal Gain

X X X X -X

Proforma Process A/C

Dr. Particulars To Units introduced To Process Material Unit X Amount X X Particulars By Normal Loss A/C (@ Scrap value) By Abnormal Loss A/C (@ PCPU) By Unit Transferred to Next Process A/C Cr. Unit Amount X X X X

To Wages To Production overheads To Other Expenses To Abnormal Gain A/C (@ PCPU) X X

X X X X X

Normal Loss A/C

Dr. Particulars To Process account (@ Scrap value) Unit X X Amount X X Particulars By Cash account (@ Scrap value) By Abnormal gain (@ Scrap value) Cr. Unit Amount X X X X X X

Dr. Particulars To Process account (@ PCPU)

Abnormal Loss A/C

Unit X Amount X Particulars By Cash account (@ Scrap value) By Costing P&L account (Balancing Figure) X

Cr. Unit Amount X

Abnormal Gain A/C

Dr. Particulars To Normal loss A/C (@ Scrap value) Unit X Amount X Particulars By Process A/C (@ PCPU ) X Cr. Unit Amount X

To costing P&L A/C

X
X

X
X

Calculation of Process Cost Per Unit

Input (-)Normal Loss Expected Output X X X

PCPU

Total cost Scrap value

Expected output

Conclusion
Lastly the process costing system provides the mechanism to survive in a todays price competing world. It facilitates the effective pricing.