Process Costing

Process costing is a kind of operations costing which is used where standardized goods are produced like chemicals, textiles, steel, rubber, sugar.

In Process costing all costs are accumulated for each stage of production or process, and the cost per unit of product is ascertained at each stage of production by dividing the total normal cost of each process by the normal output of that process.

Features of Process Costing:

(a) The production is continuous

(b) The product is homogeneous

(c) The process is standardized

(d) Output of one process become raw material of another process

(e) The output of the last process is transferred to finished stock

(f) Costs are collected process-wise

(g) Both direct and indirect costs are accumulated in each process

(h) If there is a stock of semi-finished goods, it is expressed in terms of equivalent units

(i) The total cost of each process is divided by the normal output of that process to find out cost per unit of that process.

Items Debited to Process A/c.

a) Cost of materials used in that process.

b) Cost of labour incurred in that process.

c) Direct expenses incurred in that process.

d) Overheads charged to that process on some pre determined.

e) Cost of ratification of normal defectives.

f) Cost of abnormal gain (if any arises in that process)

Items Credited to Process A/c.

a) Scrap value of Normal Loss (if any) occurs in that process.

b) Cost of Abnormal Loss (if any occurs in that process)

NORMAL LOSS:

Normal loss is an unavoidable loss which occurs due to the inherent nature of the materials and production process under normal conditions. It is normally estimated on the basis of past experience of the industry. It may be in the form of normal wastage, normal scrap, normal spoilage, and normal defectiveness. It may occur at any time of the process. 

ABNORMAL LOSS:

Any loss caused by unexpected abnormal conditions such as plant breakdown, substandard material, carelessness, accident etc. such losses are in excess of pre-determined normal losses.

Value of Ab. Loss = Total Cost increase – Scrap Value of normal Loss x Units of abnormal loss
                                                  Input units – Normal Loss Units

Abnormal Gains: 

If the actual loss is less than the normal loss then it is called as abnormal gain. The value of the abnormal gain calculated in the similar manner of abnormal loss. 

Value of Ab. Gain =      Total Cost incurred – Scrap Value of Normal Loss x Abnormal Gain Unites

                                                            Input units – Normal Loss Units

These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter (Process Costing) in CS Executive Module I Cost and Management Accounting (MCQ based OMR) Exam.