Bcom 2nd year process costing notes pdf

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Bcom 2nd year process costing notes pdf

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Bcom 2nd year process costing notes pdf

(Meaning and Definition of Process accounts)

 It is not possible to complete the production of any thing by a process. They have to go through many processes to reach their final position. The material made by one process acts like the raw material for the second process and the finished material of the second process is the raw material for the third process. In this way, the production work of an object is completed by going through many processes. This system is used in textile, soap, sugar, paper, alcohol, vegetable ghee, rubber and tires, chemicals, oil, iron and steel etc. In the process costing method, a separate account of each process is opened. In each account, the expenses related to it are written. Thus the cost of each process is determined separately.

According to Sharles, “Law cost accounts are used in industries whose goods are manufactured in different processes and the cost of each process needs to be determined.”

Process cost accounting refers to a method under which the production cost of a product (commodity) is determined at each stage of manufacture or at each process.

Following are the main definitions of the process cost method

According to the BK weight, process profiling is a method of finding the cost of one or more processes that is associated with the conversion of raw materials into manufactured products.

According to Heldon, “Process outlining is the method of determining costs that is used to determine the cost of a product at each process, each operation, or at every level of production.”

Procedure (Method) Takes Process Cost Accounting Objectives of the Method

(Objectives of process costing)

The main reasons for or the need for process cost accounting are as follows.

(1) To find the cost of different processes – It is necessary to find the cost of each process at different stage of production or different cost of each process. This allows a lot of convenience in establishing control over costs. With the help of process cost accounting, the cost of various processes becomes known.

(2) Knowledge of departmental efficiency and economy – To make the production process economical of each department, different cost of each process is required, which can be obtained only with the help of process cost accounting.

(3) Knowledge of decay occurring in different processes When the raw material passes through different processes, it is natural for the material to work due to other reasons like chemical reactions and evaporation. But in every process there is different amount of waste of material. Therefore, to find the true cost of each process, it is also necessary to estimate the amount of this loss which can be obtained only with the help of process cost accounting.

Finding the value of a by-product – In some industries, by-products and by-products are also produced while producing the ‘main product’. For example, in oil manufacturing, in cotton, cotton – cottonseed etc. In such industries process articles are required to find the true cost of both types of products.

General principles of process cost accounting

(1) The entire factory is divided into different process centers or departments, then separate accounts are opened for each process i.e. as many process accounts are completed, as many process accounts are opened.

(2) Whatever expenditure is incurred in each process in the form of material, labor, direct expenditure, indirect expenditure, etc., all of them are written in the debit side of that process account. Indirect expenses are written into the debit of the process account by distributing it on a reasonable basis. With no basis given for the distribution of indirect expenses, they are distributed on the basis of direct labor (wages).

(3) A proper accounting of the losses in the process is maintained. If the loss or reduction in weight is normal, process account is credited from it. If some amount is received from the sale of caries or its residual scrap, it is also credited to the respective process account. Conversely, if there is more decay than normal, the excess decay is called Abnormal wastage, which is credited to the process account at the cost of production.

(4) If a process produces a by-product (By product), then the process account is credited at its cost.

(5) The amount of material put into any process is written to the debit of that process account while the amount of production it produces, and the amount of decay that is produced are written to the credit of the process account.

(6) On completion of production of each process, the average cost per unit becomes known by dividing the number of units produced in the total cost of that process.

6. General loss in production and incomplete units at the beginning and end of the period are also taken into account while calculating the average cost.

(7) Sometimes a part of the production of each process is sent to the warehouse for sale and further process is completed on the remaining part. The quantity and cost of these two parts are credited to the respective process account.

(8) Sometimes the production of one process is sent by adding some profit to the next process. This amount of profit is debited to the process account and the process account is credited with the increased value by adding it to the value of the product produced. The next process is debited with this increased value. If the profit-adding system is adopted in this way, at the end of the year, the profit-loss account for the remaining stocks must be organized for the unrealized profits.

(9) When a production process is completed, the goods manufactured in it and the same total cost are transferred to the next process and this process continues till the last process. But sometimes it happens that the entire goods manufactured in the KC process are not transferred to the Angali process and some part of it is transferred to the next process and some part is transferred to the warehouse for sale or sold directly. But both of them are in the credit of that process account .


related post

Cost Accounting

  1. Importance and Elements of Cost
  2. Materials
  3. Labour
  4. Overheads
  5. Contract and Job Costing
  6. Process Costing
  7. Operating Cost
  8. Reconciliation of Cost and Financial Accounts
  9. Unit of Output costing
  10. Tender price
  11. Machine Hour Rate
  12. Cost Contral Account and Integrate Accounts

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