22-07-2013, 04:53 PM
PROCESS COSTING
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Meaning:
Process : A process means a distinct manufacturing operation or stage. In process Industries, the raw material goes through a number of processes in a sequence before the finished product is finally produced.
Process Costing :
Process Costing is applicable only to those industries where the production takes place in various stages and each stage is known as process. In case of process industries cost is incurred in each and every process continuously. Hence to find out the cost of the final product. It becomes necessary to find out the cost per unit at the end of each and every process. This type of costing is useful in case of paper industries, sugar industries, textile industries, oil and printing press etc.
One of the imp. Feature of process costing is that the output of first process becomes the input of second process and this continues till we get the final product.
Features of Normal and Abnormal loss
1. Normal loss is always due to some internal factors where as abnormal loss is due to some external factors.
2. Normal loss can be estimated in advance on the basis of past experience and data e.g.Loss of material by evaporation, normal breakages or Shrinkage etc.
3. Any loss caused by unexpected or abnormal conditions such as plant break down, sub standard materials, carelessness, accident etc should be regarded as abnormal loss.
4. Normal loss is unavoidable where as abnormal loss can be avoided.
5. Normal loss can be always expected in advance. Whereas abnormal loss can not be expected in advance.
6. Normal loss is always calculated as a percentage of input quantity. Where as abnormal loss is always calculated as a balancing figure.
Abnormal loss = Total loss- Normal loss
7. Normal loss is always a charge to the process A/c. Where as abnormal loss is always a charge to profit and loss A/c.
8. Since normal loss is a charge to the process A/c, it should always be credited in the process a/c at selling price only. Where as abnormal loss being a charge to the profit and loss A/c should be always credited to the process A/c at cost price only.
1.Joint products
The joint products are used for two or more products of almost equal economic value , which are simultaneously produced from the same manufacturing process and the same raw material.
They are comparatively of almost equal value. Joint products may be saleable or may be further processed by incurring additional cost to make them saleable or an improve product.
e.g In oil refining, where items like petrol, diesel and kerosene are produced from the crude oil.
2. Co- Products
Co- products refer to more than one product being manufactured by a company but need not necessarily arise from the same raw material and manufacturing process and the quantity of each product can be changed by the management. For e.g. In a bakery the various co- products are bread, cake, biscuits etc.
3.By- Products
By –products are products of relatively small value which are incidentally and unavoidably produced in the course of manufacturing the main product. For e.g. In sugar mills the main product is sugar. But bagase and Molasses are the by- product.
Oil cake produced in the extraction of edible oil,
Cotton seed produced in cotton textile industry