Introduction

•Process costing is a special BRANCH of

costing used by the manufacturing industries.
•Who are involved in converting the RAW
MATERIAL into the FINISHED
PRODUCTS.
•Such work of conversion is done step by
step, each step called “a process”.
•Process costing is method of allocating
manufacturing cost to product to determine
the average per unit cost.
Features of Process costing
A separate process account is prepared for each
process.
Where all input and expenses are recorded at
DEBIT SIDE and losses and output CREDITED.
The output of one process becomes the input of
next process and so on until the finished products are
obtained.
When the goods are sold, the amount is transferred
as cost of goods sold account.
When the goods are completed, they will be
transferred to finished goods account.
Process costing
Presented by:
Nida Fatima
Roll No.01
SUMMARY
•Meaning
•Characteristics of Process Costing
•Application of Process Costing
•Procedure
•Methods of Process Costing
•Advantages and Disadvantages of
Process Costing
•Format of Process Costing
Meaning
•Process costing is one of the method of
costing. It refers to costing of operation(s) or
process(as) involved in converting materials
into finished products.
•Its main object is to provide an average cost
of product.
•CIMA London defines process costing as
“that form of operation costing which applies
where standardize goods are produced”
Characteristics of Process Costing
•The products are processed in one o more
processes.
•The products are standardized and similar.
•The products are distinguishable in
processing stage.
•When a product is produced through different
processes, the output of each process is
transferred to next process and that of last
process is transferred to the finished stock.
Application of Process Costing
Process costing may be used in wide number of
industries. It is best suited to conditions where the
product is manufactured through a continuous
sequence of operations.
For example: manufacturing industries, mining
industries, chemical industries, public utility
services etc.
Process costing requires fewer forms and less
details than those needed for job costing. But here a
closer analysis of operations is needed.
Procedure
•The factory is divided into process centers and an account
is maintained for each process centre or department.
•Direct and indirect cost relating to each processes or
department are recorded at the end of the period.
•Daily or weekly production in terms of quantities such as
units, tons, etc. are recorded and summarized in process or
departments reports.
•Average cost per unit is found by dividing total cost of each
process by total production. In arriving at average unit cost,
(a) normal loss in production and (b) incomplete units at the
beginning and at the end of the period are taken into
consideration.
•If the products are produced by different process, cost of
previous process is transferred to the subsequent process so
that total and units cost of products are accumulated.
Methods of Process Costing
FIFO Method:
•It follows the principle that materials used should carry the actual
experienced cost of the specific units used.
•It is more complex.
•It is more accurate.
•It is used where size and costs is large.
Weighted Average Method:
•It assumes that all costs, whether from a proceeding period or the
current one are lumped together and assigned to produce units.
•It is simple to calculate.
•It is used where assigning a specific cost to an individual units
impossible.
 Advantages & Disadvantages of
Process Costing
Advantages Disadvantages
•Periodical •no detailed analysis
determination of cost
•Simple and cheap
•Managerial
•Standard process and
products