Page 248 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes Finished Stock: ` 97,600/` 1,50,000 X ` 30,000 = ` 19,520
Profit = ` 30,000 – ` 19,520 = ` 10,480

(B) Actual Realized Profit is as shown below:
Particulars Apparent Profit from Unrealized Profit Actual Profit
Process (`) [Gross] (`)
in Closing Stock (`)
process I 10,000 Nil 10,000
process II 20,000 2,000 18,000
process III 30,000 5,600 24,400
Finished Stock 50,000 10,480 39,520
Total 1,10,000 18,080 91,920

(C) Stock Valuation for Balance Sheet purpose:
Particulars Amount (`)
process I 10,000
process II 18,000
process III 24,400
Finished Stock 39,520
Total 91,920
If the products are produced by different processes, cost of previous process is transferred to the
next process, so that total and unit cost of products are accumulated. In short, cost of products will
comprise all costs incurred in all the processes upto finished stage. There is no departure from the
principles regarding direct and indirect expenditures. The costs of processing will include:

z z Materials,
z z Labour,

z z Direct Expenses, and
z z Indirect Overheads.
Materials issued for a particular process are debited direct to it and so also labour engaged only
on that process. If two or more processes are carried on in the same department, the department
expenses will be apportioned among the processes carried on there.

Notes Apart from direct expenses, some indirect overheads, common to all process, are
bound to be incurred. The salary of the works manager, for example, will have to be
allocated to all the process. The normal practice is to do that on the base of direct wages
or labour but that naturally would depend on the circumstances of each case. It is quite
possible that a complicated process should absorb more indirect overheads.

The total of each process account less any work in progress is transferred to the next process
account. The balance in the final or last process is transferred to the finished stock account.

Example: A product passes through three processes, process A, process B and process C
to completion. During the month of March, 2007, 1,000 units were produced and the following
was the expenses:

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