{"id":3437,"date":"2020-02-21T08:25:07","date_gmt":"2020-02-21T08:25:07","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3437"},"modified":"2020-02-21T08:25:07","modified_gmt":"2020-02-21T08:25:07","slug":"process-costing","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/process-costing\/","title":{"rendered":"PROCESS COSTING"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/process-costing\/#PROCESS_COSTING\" title=\"PROCESS COSTING\">PROCESS COSTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/process-costing\/#FEATURES_OF_PROCESS_COSTING\" title=\"FEATURES OF PROCESS COSTING\">FEATURES OF PROCESS COSTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/process-costing\/#APPLICATIONS_OF_PROCESS_COSTING\" title=\"APPLICATIONS OF PROCESS COSTING\">APPLICATIONS OF PROCESS COSTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/process-costing\/#GENERAL_PRINCIPLES_OF_PROCESS_COSTING\" title=\"GENERAL PRINCIPLES OF PROCESS COSTING\">GENERAL PRINCIPLES OF PROCESS COSTING<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/process-costing\/#ADVANTAGES_OF_PROCESS_COSTING\" title=\"ADVANTAGES OF PROCESS COSTING\">ADVANTAGES OF PROCESS COSTING<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/process-costing\/#LIMITATIONS_OF_PROCESS_COSTING\" title=\"LIMITATIONS OF PROCESS COSTING\">LIMITATIONS OF PROCESS COSTING<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/process-costing\/#ACCOUNTING_FOR_PROCESS_COSTING\" title=\"ACCOUNTING FOR PROCESS COSTING\">ACCOUNTING FOR PROCESS COSTING<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"process-costing\"><span class=\"ez-toc-section\" id=\"PROCESS_COSTING\"><\/span><strong>PROCESS COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Process Costing is that aspect of operation costing which is used to ascertain the cost of the product at each process or stage of manufacture. This method of accounting used in industries where the process of manufacture is divided into two or more processes. The objective of process accounting is to find out the total cost of the process and the unit <a rel=\"noreferrer noopener\" aria-label=\"cost (opens in a new tab)\" href=\"https:\/\/commerceiets.com\/types-of-cost\/\" target=\"_blank\">cost<\/a> of the process for each and every process. Usually the industries where process costing used are textile, oil industries, cement, pharmaceutical etc. <\/p>\n\n\n\n<p><strong>ACCORDING TO\nCHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON<\/strong><\/p>\n\n\n\n<p>\u201cProcess costing is that form of operation costing which applies where standardize goods are produced.\u201d<\/p>\n\n\n\n<p>Process costing is a method of costing under which all costs\nare accumulated for each stage of production or process, and the cost per unit\nof product is ascertained at each stage of production by dividing the cost of each\nprocess by the normal output of that process.<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"features-of-process-costing\"><span class=\"ez-toc-section\" id=\"FEATURES_OF_PROCESS_COSTING\"><\/span><strong>FEATURES OF PROCESS COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Process costing is that aspect of operation costing which is\nused to ascertain the cost of the product at each process or stage of\nmanufacture, where processes are carried on having one or more of the following\nfeatures:<\/p>\n\n\n\n<p><strong>CONTINUOUS PROCESS:<\/strong>\nProduction is done having a continuous flow of identical products except where\nplant and machinery is shut down for repairs, etc.<\/p>\n\n\n\n<p><strong>CLEARLY DEFINED\nPROCESS: <\/strong>In Process Costing, there is clearly defined process cost centres\nand the accumulation or all costs (materials, labour and overheads) by the cost\ncentres.<\/p>\n\n\n\n<p><strong>ACCURACY OF RECORDS:<\/strong>\nThe maintenance of accurate records of units and part units produced and cost\nincurred by each process.<\/p>\n\n\n\n<p><strong>TRANSFER OF\nMATERIALS:<\/strong> &nbsp;The finished product of\none process becomes the raw materials of the next process or operation and so\non until the final product is obtained.<\/p>\n\n\n\n<p><strong>TYPES OF LOSSES:<\/strong> &nbsp;Avoidable and unavoidable losses usually arise\nat different stages of manufacture for various reasons. Treatment of normal and\nabnormal losses or gains is to be studied in this method of costing.<\/p>\n\n\n\n<p><strong>CHECK ON INEFFICIENCY\nIS POSSIBLE:<\/strong> Sometimes goods are transferred from one process to another\nprocess not at cost price but at transfer price just to compare this with the market\nprice and to have a check on the inefficiency and losses occurring in a\nparticular process. Elimination of profit element from stock is to be learnt in\nthis method of costing.<\/p>\n\n\n\n<p><strong>MEASUREMENT OF\nPRODUCTION AT EVERY STAGE:<\/strong> In order to obtain accurate average costs, it is\nnecessary to measure the production at various stages of manufacture as all the\ninput units may not be converted into finished goods; some may be in progress. Calculation\nof effective units is to be learnt in this method of costing.<\/p>\n\n\n\n<p><strong>JOINT PRODUCTS OR\nBY-PRODUCTS:<\/strong> Different products with or without by-products are\nsimultaneously produced at one or more stages or processes of manufacture. The\nvaluation of by-products and apportionment of joint cost before point of\nseparation is an important aspect of this method of costing. In certain\nindustries, by-products may require further processing before they can be sold.\nA main product of one firm may be a by-product of another firm and in certain\ncircumstances, it may be available in the market at prices which are lower than\nthe cost to the first mentioned firm. It is essential, therefore, that this\ncost be known so that advantages can be taken of these market conditions.<\/p>\n\n\n\n<p><strong>UNIFORM OUTPUT:<\/strong>\nOutput is uniform and all units are exactly identical during one or more processes.\nSo the cost per unit of production can be ascertained only by averaging the\nexpenditure incurred during a particular period. <\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"applications-of-process-costing\"><span class=\"ez-toc-section\" id=\"APPLICATIONS_OF_PROCESS_COSTING\"><\/span><strong>APPLICATIONS OF PROCESS COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The industries in which process costs may be used are many.\nIn fact a process costing system can usually be devised in all industries\nexcept where job, batch or unit or operation costing is necessary. In particular,\nthe following are examples of industries where process costing is applied:<\/p>\n\n\n\n<p><strong>1. IDENTICAL PRODUCTS\nINDUSTRIES <\/strong><\/p>\n\n\n\n<p>Process costing is most often used when manufacturers\nrelease identical products. If mass produced televisions have the same parts,\nmanufacturers can assign consistent prices to the products based on how much the\nproducts cost to manufacture overall. <\/p>\n\n\n\n<p><strong>2. INDUSTRIES WITH\nMULTIPLE DEPARTMENTS <\/strong><\/p>\n\n\n\n<p>Businesses that have multiple departments usually use\nprocess costing so that management can assess the costs accumulated by each\ndepartment. For example, one department can take the raw resources and refine them\nbefore turning them into finished parts, another department can assemble the\nparts and a third department can test the finished product to assess both\nquality and safety. Materials might need to be shipped from one department to\nanother, which may incur additional costs. When the costs of production go up\nunexpectedly, process costing can allow management to quickly pinpoint the\ndepartment responsible for the increased costs and identify the source of the\nincreased cost. <\/p>\n\n\n\n<p><strong>3. INDUSTRIES WITH\nINTERCHANGEABLE PARTS <\/strong><\/p>\n\n\n\n<p>Process costing comes into play when a factory manufactures\nidentical parts. For example, a computer manufacturing plant will create\nnumerous components that are interchangeable among computers of the same model.\nProcess costing allows manufacturers to sell individual parts separately to\ncomputer repair shops or individual buyers, since the manufacturers know the\ncost of the separate parts. <\/p>\n\n\n\n<p><strong>4. INDUSTRIES WITH\nVARYING PRODUCT FEATURES <\/strong><\/p>\n\n\n\n<p>Products that have multiple extraneous features can benefit\nfrom process costing. Manufacturers can release two versions of the product,\nwith one version costing less but having fewer features and another product costing\nmore but having more features. For example, a manufacturer might release two\ncoffee pots, one with a timer and one without. Process costing lets the\nmanufacturer know how much the timer costs to add to the coffee pot, which\nenables the manufacturer to gauge how much it must raise the price on the coffee\npot with the timer. <\/p>\n\n\n\n<p><strong>5. INNOVATIVE\nINDUSTRIES <\/strong><\/p>\n\n\n\n<p>Process costs are important in industries that have high\ninnovation. For example, manufacturers cannot determine an appropriate price\nfor a new type of product without knowing how much the product will cost to manufacture\noverall. In addition, businesses cannot determine if a product will be\nprofitable until they know the overall cost so they can estimate the maximum\nprice that customers will pay for the product.<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"general-principles-of-process-costing\"><span class=\"ez-toc-section\" id=\"GENERAL_PRINCIPLES_OF_PROCESS_COSTING\"><\/span><strong>GENERAL PRINCIPLES OF PROCESS COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>&nbsp;1. The majority of\nitems of cost can ordinarily be identified with specific processes and\ncollected and accumulated separately for each period. <\/p>\n\n\n\n<p>&nbsp;2. Production records\nof each process are so designed as would show the quantum of production for each\nperiod. <\/p>\n\n\n\n<p>&nbsp;3. The total cost of\neach process is divided by the total production by the process for arriving at\nthe unit cost of the article processed. <\/p>\n\n\n\n<p>&nbsp;4. The cost of any\nnormal spoilage or wastage is included in the cost of the total units produced.\nThereby the average cost per unit is increased. <\/p>\n\n\n\n<p>&nbsp;5. As the product\ntravels from one process to another, the cumulative cost thereof in respect of\nthe processes it has already undergone is transferred to the account of the\nprocess it has yet to undergo.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"advantages-of-process-costing\"><span class=\"ez-toc-section\" id=\"ADVANTAGES_OF_PROCESS_COSTING\"><\/span><strong>ADVANTAGES OF PROCESS COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>&nbsp;1. Costs are be\ncomputed periodically at the end of a particular period <\/p>\n\n\n\n<p>&nbsp;2. It is simple and\ninvolves less clerical work that job costing <\/p>\n\n\n\n<p>&nbsp;3. It is easy to\nallocate the expenses to processes in order to have accurate costs. <\/p>\n\n\n\n<p>&nbsp;4. Use of standard\ncosting systems in very effective in process costing situations. <\/p>\n\n\n\n<p>&nbsp;5. Process costing\nhelps in preparation of tender, quotations <\/p>\n\n\n\n<p>&nbsp;6. Since cost data is\navailable for each process, operation and department, good managerial control\nis <\/p>\n\n\n\n<p>possible. <\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"limitations-of-process-costing\"><span class=\"ez-toc-section\" id=\"LIMITATIONS_OF_PROCESS_COSTING\"><\/span><strong>LIMITATIONS OF PROCESS COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>&nbsp;1. Cost obtained at\neach process is only historical cost and are not very useful for effective\ncontrol. <\/p>\n\n\n\n<p>&nbsp;2. Process costing is\nbased on average cost method, which is not that suitable for performance analysis,\nevaluation and managerial control. <\/p>\n\n\n\n<p>&nbsp;3. Work-in-progress\nis generally done on estimated basis which leads to inaccuracy in total cost calculations.\n<\/p>\n\n\n\n<p>&nbsp;4. The computation of\naverage cost is more difficult in those cases where more than one type of products\nis manufactured and a division of the cost element is necessary.<\/p>\n\n\n\n<p>5. Where different products arise in the same process and\ncommon costs are prorated to various costs units. Such individual products\ncosts may be taken as only approximation and hence not reliable. <\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"accounting-for-process-costing\"><span class=\"ez-toc-section\" id=\"ACCOUNTING_FOR_PROCESS_COSTING\"><\/span><strong>ACCOUNTING FOR PROCESS COSTING<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>ACCOUNTING FOR\nMATERIALS <\/strong><\/p>\n\n\n\n<p>Materials and supplies as in the case of job costing are\nissued to each process only against authorized requisitions. At the end of each\nprocess or of each costing period, the requisitions are sorted according to processes\nand their values listed on a material summary sheet. On the basis of this\nsummary sheet, a journal entry is passed to debit the various process accounts\nand the material control account is credited. <\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>ACCOUNTING FOR LABOUR\n<\/strong><\/p>\n\n\n\n<p>In order to account for labour, the first step is identification of each worker with the process in which he is engaged. If the workers are permanently assigned to the process, such identification would not pose any problem as the pay rolls would be prepared in a manner so as to show the wages cost of each process separately. <\/p>\n\n\n\n<p>Where it is necessary to frequently transfer workers from one process to another, it may not be possible to have a permanent classification of workers according to processes. In such a case, it is necessary to prepare daily time reports showing the number of employees engaged in each process. <\/p>\n\n\n\n<p>If any worker is required to divide his time among two or more processes, a transfer form would be used to record his times on different processes. At the end of the week or that of the costing period, the daily time reports and transfer forms would be abstracted on a labour summary sheet. <\/p>\n\n\n\n<p>On this basis a journal entry would be made, debiting various process accounts and crediting the wages control account. <\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>ACCOUNTING FOR\nOVERHEADS <\/strong><\/p>\n\n\n\n<p>Since normally it is practicable to identify all materials\nand labour charges with specific processes, the overhead expenses chargeable to\na process ordinarily would not contain cost of indirect materials or labour. <\/p>\n\n\n\n<p>But there still would be several items of expenses that do\nnot relate to any particular process. It would be necessary to apportion them\nto various processes on suitable bases. Different bases that are generally adopted\nfor making such a distribution are stated below:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  <strong>ITEMS OF EXPENSES<\/strong>\n  <\/td><td>\n  <strong>BASIS OF DISTRIBUTION <\/strong>\n  <\/td><\/tr><tr><td>\n  Rent, rates and taxes\n  <\/td><td>\n  Area occupied by each process.\n  <\/td><\/tr><tr><td>\n  Power\n  <\/td><td>\n  Meter readings or horse power of plant employed for each process.\n  <\/td><\/tr><tr><td>\n  Fire insurance\n  <\/td><td>\n  Value of asset and the degree of risk involved.\n  <\/td><\/tr><tr><td>\n  Water, gas, steam, etc.\n  <\/td><td>\n  Meter readings or technical estimates.\n  <\/td><\/tr><tr><td>\n  Depreciation of plant\n  <\/td><td>\n  Value of assets employed.\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Amounts of manufacturing overheads are, usually debited in totals to a total overhead account entitled \u2018Manufacturing Overhead Control Account\u2019. From this account, the total amount is distributed to various process accounts on the basis of a manufacturing overhead summary sheet. <\/p>\n\n\n\n<p>The summary sheet contains a description of various items of manufacturing overheads and the manner in which the same has been distributed, i.e. one or other based mentioned above. <\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>PROCESS ACCOUNT<\/strong><\/p>\n\n\n\n<p>For each process an individual process account is prepared.\nEach process of production is treated as a distinct cost centre. <\/p>\n\n\n\n<p><strong>Items on the Debit\nside of Process Account<\/strong><\/p>\n\n\n\n<p>In process Costing, individual process Accounts are prepared\nfor each process. Each process account is debited with-<\/p>\n\n\n\n<p>(a) Cost of materials used in that process. <\/p>\n\n\n\n<p>(b) Cost of labour incurred in that process. <\/p>\n\n\n\n<p>(c) Direct expenses incurred in that process. <\/p>\n\n\n\n<p>(d) Overheads charged to that process on some pre\ndetermined. <\/p>\n\n\n\n<p>(e) Cost of ratification of normal defectives. <\/p>\n\n\n\n<p>(f) Cost of abnormal gain (if any arises in that process) <\/p>\n\n\n\n<p><strong>Items on the Credit\nside of Process Account <\/strong><\/p>\n\n\n\n<p>Each process account is credited with- <\/p>\n\n\n\n<p>&nbsp;(a) Scrap value of\nNormal Loss (if any) occurs in that process. <\/p>\n\n\n\n<p>&nbsp;(b) Cost of Abnormal Loss (if any occurs in that process)<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"638\" height=\"479\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/02\/process-account.jpg\" alt=\"process account\" class=\"wp-image-3438\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/02\/process-account.jpg 638w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/02\/process-account-300x225.jpg 300w\" sizes=\"(max-width: 638px) 100vw, 638px\" \/><\/figure>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>COST OF PROCESS<\/strong><\/p>\n\n\n\n<p>The cost of the output of the process (Total Cost less Sales value of scrap) is transferred to the next process. 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.<\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>PROCESS LOSSES<\/strong><\/p>\n\n\n\n<p>In manufacturing processes, entire input is not getting\nconverted into output. A certain part of input is lost while processing which\nis inevitable. Certain production techniques are of such a nature that some\nloss is inherent to the production. Wastages of material, evaporation of\nmaterial are un- avoidable in some process. But sometimes the Losses are also\noccurring due to negligence of Labourer, poor quality raw material, poor technology\netc. These are normally called as avoidable losses. Basically process losses\nare classified into two categories (a) Normal Loss (b) Abnormal Loss <\/p>\n\n\n\n<ol><li><strong>Normal Loss: <\/strong><\/li><\/ol>\n\n\n\n<p>Normal loss is an unavoidable loss which occurs due to the\ninherent nature of the materials and production process under normal\nconditions. It is normally estimated on the basis of past experience of the\nindustry. It may be in the form of normal wastage, normal scrap, normal\nspoilage, and normal defectiveness. If the normal loss units can be sold as a\nscrap then the sale value is credited with process account. If some rectification\nis required before the sale of the normal loss, then the cost of rectification\nis debited in the process account. The cost per unit of a process is calculated\nafter adjusting the normal loss. In case of Normal Loss the cost per unit is\ncalculated by the under given formulae. <\/p>\n\n\n\n<p><strong>Cost of Good Unit = (Total Cost-Sale value of Scrap\/ Input Normal- Loss\nUnits)<\/strong><\/p>\n\n\n\n<ul><li><strong>Abnormal Loss: <\/strong><\/li><\/ul>\n\n\n\n<p>Any loss caused by unexpected abnormal conditions such as\nplant breakdown, substandard material, carelessness, accident etc. such losses\nare in excess of pre-determined normal losses. This loss is basically avoidable.\nThus abnormal losses arrive when actual losses are more than expected losses.\nAbnormal losses in calculated as per under given formulae: <\/p>\n\n\n\n<p><strong>Value of Abnormal Loss = (Total Cost-Sale value of Scrap\/ Input Normal-\nLoss Units) \u00d7&nbsp; Units in abnormal loss<\/strong><\/p>\n\n\n\n<p>Abnormal Process loss should not be allowed to affect the\ncost of production as it is caused by abnormal (or) unexpected conditions. Such\nloss representing the cost of materials, labour and overhead charges called abnormal\nloss account. The sales value of the abnormal loss is credited to Abnormal Loss\nAccount and the balance is written off to costing P &amp; L A\/c.<\/p>\n\n\n\n<p class=\"has-text-align-center\"><strong>SPECIMEN: ABNORMAL LOSS ACCOUNT<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  <strong>PARTICULARS<\/strong>\n  <\/td><td>\n  <strong>UNITS<\/strong>\n  <\/td><td>\n  <strong>AMOUNT<\/strong>\n  <\/td><td>\n  <strong>PARTICULARS<\/strong>\n  <\/td><td>\n  <strong>UNITS<\/strong>\n  <\/td><td>\n  <strong>AMOUNT<\/strong>\n  <\/td><\/tr><tr><td>\n  To Process A\/c\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  By Bank Account\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  By Costing Profit and Loss Account\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>ABNORMAL GAINS<\/strong><\/p>\n\n\n\n<p>The margin allowed for normal loss is an estimate (i.e. on\nthe basis of expectation in process industries in normal conditions) and slight\ndifferences are bound to occur between the actual output of a process and that anticipates.\nThis difference may be positive or negative. If it is negative it is called ad\nabnormal Loss and if it is positive it is Abnormal gain i.e. if the actual loss\nis less than the normal loss then it is called as abnormal gain. The value of\nthe abnormal gain calculated in the similar manner of abnormal loss. The\nformula used for abnormal gain is: <\/p>\n\n\n\n<p><strong>Value of Abnormal\nGain = (Normal cost of normal output x Units of Abnormal gain)\/ Normal output<\/strong><\/p>\n\n\n\n<p><strong>Normal cost of normal\noutput = Total expenditure\u2013 Sale Proceeds of scrap<\/strong><\/p>\n\n\n\n<p><strong>Normal output = Input\n\u2013 Units of normal loss<\/strong><\/p>\n\n\n\n<p><strong>Units of Abnormal\ngain = Normal loss- Actual loss<\/strong><\/p>\n\n\n\n<p><strong>Or = Actual output &#8211;\nNormal output<\/strong><\/p>\n\n\n\n<p>The sales values of abnormal gain units are transferred to\nNormal Loss Account since it arrive out of the savings of Normal Loss. The\ndifference is transferred to Costing P &amp; L A\/c. as a Real gain. <\/p>\n\n\n\n<p class=\"has-text-align-center\"><strong>SPECIMEN: ABNORMAL GAIN ACCOUNT<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  <strong>PARTICULARS<\/strong>\n  <\/td><td>\n  <strong>UNITS<\/strong>\n  <\/td><td>\n  <strong>AMOUNT<\/strong>\n  <\/td><td>\n  <strong>PARTICULARS<\/strong>\n  <\/td><td>\n  <strong>UNITS<\/strong>\n  <\/td><td>\n  <strong>AMOUNT<\/strong>\n  <\/td><\/tr><tr><td>\n  To Normal Loss A\/c\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  By Process Account\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  To Costing Profit and Loss Account\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>EQUIVALENT PRODUCTION<\/strong><\/p>\n\n\n\n<p>This represents the production of a process in terms of\ncompleted units. In other words it means converting the incomplete production\nunits into its equivalent of complete units. In each process an estimate is\nmade of the percentage completion of any work-in-progress. A production\nschedule and a cost schedule will then be prepared. The work-in-progress is\ninspected and an estimate is made of the degree of completion, usually on a\npercentage basis. It is most important that this estimate is as accurate as possible\nbecause a mistake at this stage would affects the stock valuation used in the\npreparation of final accounts. The formula for equivalent production is:<\/p>\n\n\n\n<p><strong>Equivalent units of work-in-progress = Actual no. of units in process\nof manufacture x Percentage of work completed<\/strong><\/p>\n\n\n\n<p><strong>For example<\/strong>: If 20% work has been done on the average of 1,000 units still in process, then 1,000 such units will be equal to 200 completed units. The cost of work-in-progress will be equal to 200 completed units.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cost-accounting\/\">Cost Accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-cost-accounting-pdf\/\">Scope of cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/elements-of-cost\/\">Elements of cost<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/types-of-cost\/\">Types of cost<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/material-control-in-cost-accounting-pdf\/\">Material control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perpetual-inventory-system\/\">Perpetual inventory system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/pricing-of-materials\/\">Pricing of materials<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/bin-card\/\">Bin Card<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/store-ledger\/\">Stores Ledger<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incentive-plans\/\">Incentive plans<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/overhead\/\">Overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-idle-time\/\">Idle time<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/system-of-wage-payment-in-cost-accounting\/\">System of wage payment in cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-time-rate-system-and-piece-rate-system\/\">Time rate vs piece rate wage system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-centre\/\">Cost Center<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/labor-turnover\/\">Labour Turnover<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Difference between management accounting and cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-and-apportionment-of-overheads\/\">Allocation and apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-allocation-and-apportionment-of-overheads\/\">Allocation vs Apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/absorption-of-overheads\/\">Absorption of overheads<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/over-absorption-and-under-absorption-of-overheads\/\">Over absorption and under absorption of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/activity-based-costing\/\">Activity based costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-traditional-costing-and-activity-based-costing\/\">Traditional costing vs ABC system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reconciliation-of-accounts\/\">Reconciliation of accounts<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/unit-costing\/\">Unit costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-format\/\">Cost sheet format<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-vs-production-account\/\">Cost sheet vs production sheet<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/job-costing\/\">Job costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/batch-costing\/\">Batch Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-batch-costing\/\">job costing vs batch costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/contract-costing\/\">Contract costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-contract-costing\/\">Job Costing vs Contract costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/process-costing\/\">Process Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-costing-vs-job-costing\/\">Process costing vs job costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-products\/\">Joint products<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/by-products\/\">By Product&nbsp;<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/equivalent-production\/\">Equivalent production<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/marginal-costing\/\">Marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/applications-of-marginal-costing\/\">Application of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-volume-profit-analysis\/\">Cost volume profit analysis<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/tools-and-techniques-of-marginal-costing\/\">Tools and techniques of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budget\/\">Budget<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/break-even-point\/\">Break even point<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-budgetary-control\/\">Process of budgetary control<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explain-the-advantages-and-limitations-of-budgetary-control\/\">Advantages and limitations of budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budgetary-control\/\">Budgetary Control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/zero-base-budgeting\/\">Zero base budgeting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/standard-costing\/\">Standard Costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/variance-analysis\/\">Variance Analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-standard-costing-and-budgetary-control\/\">Standard costing vs budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Management accounting vs cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\">Cost accounting vs financial accounting<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>PROCESS COSTING Process Costing is that aspect of operation costing which is used to ascertain the cost of the product at each process or stage of manufacture. This method of accounting used in industries where the process of manufacture is divided into two or more processes. The objective of process accounting is to find out&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/process-costing\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;PROCESS COSTING&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3440,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[187],"tags":[],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3437"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3437"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3437\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3440"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3437"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3437"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3437"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}