Process Costing
1. Process Costing
It is used in case of industries where output is obtained by passing through multiple process i.e. output of one
process becomes the input for subsequent process until finished goods are obtained.
2. Normal Loss
It is a loss which is unavoidable in nature.
Units of such loss are shown on the credit side of process account at scrap value.
Draft Normal Loss Account
Particulars Units Amount Particulars Units Amount
To Process I A/c - - By Cash A/c (Process – I)* - -
To Process II A/c - - By Cash A/c (Process – II) - -
By Abnormal Gain A/c** - -
- - - -
Process Costing
3. Abnormal Loss
It is a loss which is avoidable in nature.
Units of such loss are shown on the credit side of process account at NCPU.
Draft Abnormal Loss Account
Particulars Units Amount Particulars Units Amount
To Process I A/c - - By Cash A/c (Process – I)* - -
To Process II A/c - - By Cash A/c (Process – II) - -
By Costing P&L A/c - -
- - (Balancing Figure) - -
* Units will be sold at scrap value only being a damaged unit.
Process Costing
4. Abnormal Gain
It is unexpected production during normal conditions.
Units of such gain are shown on the debit side of process account at NCPU.
Draft Abnormal Gain Account
Particulars Units Amount Particulars Units Amount
To Normal Loss A/c* - - By Process I A/c - -
To Costing P&L A/c - -
(Balancing Figure)
- - - -
* The abnormal gain units valued at scrap will be shown here since only the actual profit is to be taken to costing
P&L account.
Process Costing
5. Process Account
Draft Process Account
Particulars Units Amount Particulars Units Amount
To Previous Process A/c - - By Normal Loss A/c -
To Material - - (weight loss)
To Labour - By Normal loss A/c - -
To Factory OHs - (having scrap value)
To Toxic Waste A/c - By Normal loss A/c -
To Abnormal Gain A/c - - (requiring cost to be
incurred)
By Abnormal loss A/c - -
By Next Process A/c - -
(Tfd.)
By Costing P&L A/c - -
(sold)
By Finished Goods A/c - -
- - - -
!"#$% &"'# ( )&*$+ ,$%-. "/ 0"*1$% %"''
Normal cost per unit (NCPU) =
!"#$% -23#'(0"*1$% %"'' -23#'
Process Costing
6. Treatment of Royalty
Debit the amount of royalty on the basis of normal production units
Excess or less payment of royalty will be adjusted in abnormal loss or gain account
In Royalty account only final amount on actual units produced will be payable.
7. Process Account with raw material stock
(a) Opening units of raw material stock along with its value will be debited to the process account.
(b) Closing units of raw material stock along with its value will be credited to the process account.
(c) Opening and closing stock of raw material should be adjusted while computing normal cost per unit of the
process.
!"#$% 4"'# 32&%-5.' "+. *$7 1$#. (4%"'328 *$7 1$#. &"'#()&*$+ ,$%-. "/ 0*. %"'' -23#'
Normal cost per unit =
!"#$% 923#' 32&%-5.' "+. *$7 1$#. (4%"'328 *$7 1$#. -23#'(0"*1$% %"'' -23#'
Process Costing
8. Process Account with finished goods stock
(a) A separate process account is prepared for each process.
(b) Opening units of finished goods along with its value will be debited to the process stock account.
(c) Closing units of finished goods stock along with its value will be credited to the process stock account.
(d) All the goods produced by the process will be transferred to process stock account.
9. Process Account with WIP stock
(a) Opening units of WIP along with its value will be debited to the process account.
(b) Closing units of WIP along with its value will be credited to the process account.
Process Costing
10. Valuation of WIP
(a) Calculate equivalent units of production for each element of cost i.e. material, labour and overheads by
preparing statement of equivalent units.
(b) Calculate cost per equivalent unit for each element of cost i.e. material, labour and overheads.
(c) Calculate the value of WIP by multiplying the equivalent units of WIP along with cost per equivalent unit.`
Process Costing
11. Methods of WIP Stock Valuation
FIFO Method W. Average Method
Ist Process
Opening WIP
Introduced & Complete
Normal Loss
Abnormal Loss
Closing WIP
Process Costing
FIFO Method W. Average Method
Subsequent Process or Double
Material Questions
Opening WIP
Introduced & Complete
Normal Loss
Abnormal loss
Closing WIP
Process Costing
Points to Remember (PTR)
(A) Under Weighted Average Method, cost of opening WIP will be added with current cost while calculating cost
per equivalent unit.
(B) In case of abnormal gain, DOC will always be 100% and will be shown as deduction in statement of equivalent
units.
12. Inter Process Profit
Transfer goods from one process to other on cost plus profit basis.
