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Cost Accounting – I
Notes (iv) In process costing, transfer from one process to In job costing, there is normally no transfer
another is an usual feature. from one job to another. It will be only when
there is surplus or excess production.
(v) Cost are compiled on time basis : for production, Costs are determined by Jobs or batches of
for a given accounting period, for each process. products.
(vi) In process costing, production is homogeneous, In job costing, each product unit is different
stable and controllable. and therefore more managerial attention is
needed for proper control.
(vii) The unit cost of a process, which is computed In job costing, unit cost of a job is calculated
by dividing the total cost for the period into the by dividing the total cost by units produced
output of the process during that period, is an in the lot or batch in the period.
average cost for the period.
(viii) production in process costing is continuous and In job costing, there may not be opening or
therefore there is normally work-in-progress at closing work-in-progress in an accounting
beginning and closing. period.
Elements of Product Cost
(i) Direct Material: Direct material is material that can be directly identified with each unit
of the product. Direct material can be conveniently measured and directly charged to the
product. For example, raw cotton in textile manufactures, sugar-cane in sugar industry and
leather for shoe making industry. The cost of direct material includes the following:
z All type of raw materials issued from the store.
z Raw materials specifically purchased for the specific job or project.
z Raw materials transferred from one cost centre to another cost centre.
z Primary packing material, like cartons, cardboard boxes etc.
(ii) Indirect Material: They are those materials which do not normally form a part of the
finished product. It has been defined as “materials which cannot be allocated but which
can be apportioned to or absorbed by cost centres or cost units”. These are:
z Stores used in maintenance of machinery, buildings etc., like lubricants, cotton waste,
bricks and cements.
z Stores used by the service departments i.e., non-productive departments like Power
house, Boiler house and Canteen etc.
z Materials which due to their cost being small, are not considered worth while to be
treated as direct materials.
(iii) Direct Labour: Direct labour is labour that can be identified directly with a unit of finished
product. All the labour charges expended in altering the construction, composition,
confirmation or condition of the product is included in it. It includes the payment of direct
wages made to the following groups of direct labour:
z Direct labour engaged on the actual production of the product.
z Direct labour engaged in adding this manufacture by way of supervision, maintenance
and tool setting, etc.
z Inspectors, analysts, etc. especially required for such production.
(iv) Indirect Labour: The wages of that labour which cannot be allocated but which can be
apportioned to or absorbed by, cost centres or cost units is known as indirect labour. In
other words, wages paid to labour which are employed other than or production constitute
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