Page 259 - DCOM202_COST_ACCOUNTING_I

Unit 12: Process Costing and its Applications

Self Assessment Notes

Fill in the blanks:
1. Industries which are engaged in the manufacture of products which involve continuous
operation or process are known as ………………………
2. process costing is also one important method of ………………………
3. ……………………… represents the portion of a basic raw material lost in processing,
having no recovery value.
4. In process costing production is a continuous flow and the products are …………………

5. In ………………………, each product unit is different and therefore more managerial
attention is needed for proper control.
6. ……………………… as discarded material which has same recovery value and which is
usually either disposed of without further treatment.
7. Materials issued for a particular process are ……………………… direct to it and so also
labour engaged only on that process.
8. Defective products are not up to the standard or they do not meet ………………………
9. In process costing ……………………… is homogeneous, stable and controllable.
10. In job costing, there may not be ……………………… in an accounting period.
State whether the following statements are true or false:
11. Materials issued for a particular process are debited direct to it and so also labour engaged
only on that process.
12. In job costing various jobs are separate and independent.
13. The total of each process account less any work in progress is transferred to the next process
account.
14. Wastage represents the portion of a basic raw material lost in processing, having no
recovery value.
15. Any value realized from spoilage is credited to the production order or production
overheads account.
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Case Study Accounting for Spoiled Units

he House Hold Aids Company assembles clip clothespins in three sections, and uses
process costing. Under normal operating conditions, each section has a spoilage rate
Tof 2%. However, spoilage can go as high as 5% and is usually discovered when a
faulty pin enters process or on final completion by a section.
The spring mechanism is the only material which can be saved from a spoiled unit. The
production supervisor assigns a worker once or twice a week to remove the springs from
spoiled units. The salvaged springs are placed in bins at the assembly tables in section No1
to be used again. No accounting entry is made of this salvage operation.
In the past, the controller has made no attempt to account for spoilage separately. Lost unit
costs have been absorbed by the units transferred out of the section and those remaining in
the process. However, because spoilage is increasing, a different method is needed.

Contd…

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