Page 242 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I Manpreet Kaur, Lovely Professional University

Notes Unit 12: Process Costing and its Applications

CONTENTS

Objectives
Introduction
12.1 Application of process Costing
12.2 Differences between process Costing and Job Costing
12.3 Wastage, Scrap, Defectives and Spoilage
12.4 Summary

12.5 Keywords
12.6 Review Questions
12.7 Further Readings

Objectives

After studying this unit, you will be able to:
z z Understand the differences between process and job costing;
z z Describe the wastage scrap and spoilage.

Introduction

Industries which are engaged in the manufacture of products which involve continuous operation
or process are known as process industries. These industries have their special features. The
costing system should be designed bearing in mind the salient features.

Did u know? process costing is also one important method of costing. It refers to costing
of operation(s) or process(es) involved in converting raw materials into finished goods or
products. Its main objective is to provide an average cost of product.

process costing represents a type of cost procedure for continuous production industries. In such
industries, output consists of like units, each unit being processed in the same manner. Therefore,
it is assumed that the same amount of raw materials, labour and overhead is chargeable to each
unit processed. The cost of unit at the end of any manufacturing process can be easily determined
provided costs are accumulated on a process basis and record of units produced is available.
According to CIMA, “The costing method applicable where products or services result from
a sequence of continuous operations or processes. Costs are arranged over the units produced
during the period”.
According to Kohler, “A method of accounting whereby costs are charged to processes or
operations and averaged over units produced; it is employed principally where a finished
product is the result of a more or less continuous operation, as in paper mills, refineries, canneries
and chemical plants; distinguished from job costing, where costs are assigned to specific orders,
lots or units”.

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