Page 243 - DCOM202_COST_ACCOUNTING_I

Unit 12: Process Costing and its Applications

Characteristics of Process Costing Notes

The main characteristics of process costing are:
(i) The products or goods are processed in one or more processes,

(ii) The products are distinguishable in processing stage,
(iii) The products or goods are standardized, and
(iv) When a product is produced through various processes, the output of each process in
transferred to the next process and that of last process is transferred to the finished goods
or finished stocks.

Features of Process Costing:

(a) The production is continuous
(b) The product is homogeneous
(c) The process is standardized

(d) Output of one process become raw material of another process
(e) The output of the last process is transferred to finished stock
(f) Costs are collected process-wise
(g) Both direct and indirect costs are accumulated in each process

(h) If there is a stock of semi-finished goods, it is expressed in terms of equivalent units
(i) The total cost of each process is divided by the normal output of that process to find out
cost per unit of that process.

12.1 Application of Process Costing

process costing may be used in a wide number of industries. The following types of industries
may be used process costing:
(a) production or manufacturing industries, such as cement, rubber, glass, textiles, paper, iron,
steel, aluminium, milk-dairy, biscuits, soap-making, flour milling industries, etc.
(b) public utility services, such as water supply, generation of electricity, health services, etc.
(c) Mining industries, such as coal, steam, gas, oil, coking industries, etc.
(d) Chemical and distilleries industries, etc.

12.2 differences between Process Costing and Job Costing

The main differences between process costing and job costing are as follows:
S.No. Process Costing Job Costing
(i) In process costing production is a continuous In job costing, production is carried on by
flow and the products are standardized. specific order.
(ii) processes are related to each other. products also Various jobs are separate and independent.
lose their individual entity.
(iii) In process costing, costs are calculated at the end In job costing, costs are calculated when a job
of period under each process. is completed or finished.
Contd…

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