Cost Accounting ppt by Kanwal preet student of Punjabi University Patiala

1. PUNJABI UNIVERSITY
PATIALA
DEPARTMENT OF COMMERCE
COST ACCOUNTING ASSIGNMENT
TOPIC: PROCESS COSTING
SUBMITTED TO: SUBMITTED BY:
MRS. GURPEET KANWAL PREE
CLASS: M.COM
(HONS) FYIC
4TH SEMESTER
ROLL NO.
18051245
MST 2

2. PROCESS COSTING - MEANING
• Process costing is a special branch of costing used by
the manufacturing industries.
• These industries are involved in converting raw material
into finished products. This work is done in steps called '
process'.
• It computes the average cost per unit by dividing the
costs of production for a particular period by the number
of units produced during the period.
• It is defined as,'' a method of cost accounting whereby

3. EXAMPLE
In this example,
sugar production is
taking place. Here,
there are 10 steps
involved starting
from cane
extraction to bulk
sugar handling.The
costs of each of
these processes are

4. ACCOUNTING TREATMENT
• The cost of each process comprises of :
i. Material - Each process for which the materials
are used are debited with the cost of materials
consumed.
ii. Labour cost - Each process should be debited with
the labour cost or wages paid to labour for
carrying out the processing activites.
iii.Direct Expenses - Each process account should be
debited with direct expenses like depreciation,
repairs, insurance, etc associated with it.

5. FORMAT
PARTICULARS UNIT
S
RS. PARTICULARS UNIT
S
RS.
To Direct Material XX XXX By Normal loss XX XXX
To Direct Wages XXX By abnormal
loss
XX XXX
To Direct
expenses
XXX By Process II
(output
transferred0
XX XXX
To Production
Overheads
XXX By Closing stock XX XXX
To Abnormal
Gains
XX XXX

6. STEPS IN PROCESS COSTING
Step I : Analysis of physical flow of production units.
Step 2 : Calculation of equivalent units for each cost
elements.
Step 3 : Determination of total cost for each cost
element.
Step 4 : Computation of cost per equivalent unit for each
cost element.
Step 5 : Assignment of total costs to units completed

7. 1
2
3
Excess loss over the
expected level-
assigned cost.
Dr.Abnormal loss a/c
Cr.Process a/c
Gain resulted when the
actual loss is less than
the normal or expected
loss.
Losses within expected
level, not assigned cost.
No entry is made in the
books.
Abnormal Gain
Abnormal Loss
Normal Loss
ACCOUNTING FOR LOSSES

8. 1
2
3
4
Reducing material cost.
Dr. Cash a/c
Cr. Scrap a/c
Reduce cost of abnormal
loss.
Dr. Scrap a/c
Cr. Abnormal loss a/c
Actual units sold as scrap will
be less than the scrap value
of normal loss.
Dr. Abnormal gain a/c
Cr. Scrap a/c
Reducing material cost.
Dr. Scrap a/c
Cr. Process a/c
Actual cash received from
the sale of scrap
Scrap value of
abnormal loss
Scrap value (loss) of
abnormal gain
Scrap value of
normal loss
ACCOUNTING FOR SCRAP

9. WORK- IN - PROGRESS
When there is WIP
inventory at the end of
they are converted into
equivalent comleted
units.
Eg. - 100 units of WIP is
40% complete is
considered as 40 units
of production.
Procedure :
1. Summarise the flow of
units of output
2. Compute output in
terms of equivalent
units.
3. Compute equivalent
unit cost.
4. Summarise total costs
to account.
5. Assign total costs to

10. 1
2
3
4
The opening Wip is the 1st group
of units to be produced and
completed during the current
period.
It seperates the cost
computations of the opening
WIP the current period
production.The equivalent unit production
computation ignores the work
performed on the opening WIP
during the prior period.
Cost per unit = Current cost
EUP
FIFO METHOD
The opening WIP is merged
with the production of the
current period to form one
batch of production.The average cost per unit of
opening WIP and the current
period production is the same.
The equivalent unit production
computation includes all work
performed on the opening WIP during
the prior period.
Cost per unit=
Cost of OWIP + Current cost
EUP
WEIGHTED AVERAGE
METHOD

11. EXAMPLE
Lucky Ltd. makes toys in a one- department
production process. The following information is
given related to production in feb 2005.
Opening WIP : 1000 units
Degree of completion(%) Cost($)
Direct Materials 100
6000
Conversion(labour + Overhead) 60
1200
7200
February production : 20000 units
Direct Materials 30000
Conversion 52200
You are required to
prepare
process 1 a/c using
(a) FIFO method
(b) Weighted average
method

12. FIFO method
WK
1
Wk
2
Costs
Total Materials Conversion
$ $ $
Costs incurred in the period 82200 30000
52200
Costs per equivalent units 4.4 1.5 2.9
Number of equivalent units (EU)
Total Materials Conversion
units EU EU
Opening WIP 1000 0
400(40%)
Other completed units 17000 17000
17000
Total completed units 18000 17000
17400
Closing WIP 3000 3000
600 (20%)
21000 20000
18000

13. Wk3 : Cost of units tfd. to finished goods and closing WIP.
Total Materials Conversion
Opening WIP 7200 6000 1200
Cost to complete 1160 (Wk 4) 1160
1000 units completed 8360 6000 2360
17000 units completed 74800 25500 (Wk 5) 49300
Transfer to finished goods 83160 31500
51660
Closing WIP 6240 4500 (Wk 6) 1740
89400 36000 53400
Wk4 : Conversion :$ 2.9*400
=1160Wk5 : Materials : 17000*$1.5 =$
25500
Wk6: Materials :3000*$1.5 = $
4500
Conversion : 600*$2.9 = $
1740

14. Particulars Units $ Particulars Units $
Opening
WIP
1000 7200 Finished
goods
18000 8316
0
Materials 2000
0
3000
0
Closing
WIP
3000 6240
Conversion 5220
0
2100
0
8940
0
21000 8940
0
Process a/c

15. Wk 1 : Number of Equivalent units (EU)
Total Materials Conversion
units EU EU
Opening WIP 1000 1000
1000
Other completed units 17000 17000
17000
Total completed units 18000 18000
18000
Closing WIP 3000 3000 600
(20%)
21000 21000
18600
Wk 2 : Costs
Total Materials Conversion
$ $ $
Opening WIP 7200 6000 1200
Costs incurred in the period 82200 30000
52200
89400 36000 53400
WEIGHTED AVERAGE method

16. Wk 3 : Costs of units transferred to finished goods and
Closing WIP
Total Materials Conversion
$ $ $
Transfer to finished goods 82535 30587 (Wk 4)
51678
Closing WIP 6865 5143 (Wk 5) 1722
89400 35730 53400
Wk 4 : Materials : 18000*$1.71 = $ 30587
Conversion: 17000*$2.87 = $ 51678
Wk 5 : Materials : 3000*$1.71 = $ 51678
Conversion: 600*$2.87 = $ 1722

17. Process a/c
Particulars Units Rs. Particulars Units Rs.
Opening WIP 1000 7200 Finished
goods
1800
0
82535
Materials 2000
0
3000
0
Closing WIP 3000 6865
Conversion 5220
0
2100
0
8940
0
2100
0
89400

18. A
B
C
F
E
D
Costs are to be computed
periodically at the end of
a particular period.
Output is uniform and
all units are identical
during one or more
processes.
Helps in preparation of
tender , quotations.
Simple and involves
less clerical work.
Easy to allocate the
expenses in order to
have accurate costs.
Use of standard costing system
is very effective in process
ADVANTAGES

19. A
B
C
E
D
Cost obtained is only
historical cost and not
useful for effective
control.
It is based on average
cost method and is
not sitable for
performance analysis
and evaluation.
Where different
products arise in the
same process and
common costs are
prorated to various cost
units. Such indvidual
costs are not reliable.
WIP is done in
estimated basis and is
not accurate.
Computation of average cost is
more difficult in those cases
where more than one type of
product is amnufactured.
LIMITATIONS

20. THANK YOU