Process Costing

Decent Essays
P E S Institute of Technology
Department of MBA
100 Feet Ring Road, BSK III Stage, Bangalore – 560 085


Process Costing

Submitted in fulfillment of the requirements for the 3rd SEM MBA Management Accounting and Control Systems

Submitted to: Submitted by:
Prof. G V M Sharma Vandana Rajput Dept. of MBA 1PB11MBA60

Process costing is a form of operations costing which is used where standardized homogeneous goods are produced. This costing method is used in industries like chemicals, textiles, steel, rubber, sugar, shoes, petrol etc. Process costing is also used in the
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The cost of each process is thus made up to cost brought forward from the previous process and net cost of material, labour and overhead added in that process after reducing the sales value of scrap. The net cost of the finished process is transferred to the finished goods account. The net cost is divided by the number of units produced to determine the average cost per unit in that process.
Process Losses: In many process, some loss is inevitable. Certain production techniques are of such a nature that some loss is inherent to the production. Wastages of material, evaporation of material is un avoidable in some process. But sometimes the Losses are also occurring due to negligence of Labourer, poor quality raw material, poor technology etc. These are normally called as avoidable losses. Basically process losses are classified into two categories
(a) Normal Loss (b) Abnormal Loss
1. 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. No of units of normal loss: Input x Expected percentage of
Normal Loss.
The cost of normal loss is a process. If the normal loss units can be sold as
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