Page 260 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes The spoiled work should be broken into normal and abnormal spoilage. The cost of normal
spoilage should be absorbed by good completed units. All materials salvaged should be
assigned a value and placed in materials inventory. Sectional materials costs should be
reduced by the value assigned to salvaged materials.
Abnormal spoilage should be charged to factory overhead account. The cost to be included
in this account should be the amount accumulated against a clothespin up to the point
of being scraped, and the total loss in scraped clothespins should be shown in the cost of
production report of the department responsible for the loss.

12.4 Summary

z z In process costing the products or goods are processed in one or more processes.
z z The products are distinguishable in processing stage.
z z The products or goods are standardized.
z z Cost are compiled on time basis: for production, for a given accounting period, for each
process.

z z Wastage represents the portion of a basic raw material lost in processing, having no
recovery value. Wastage may be visible.

z z In process type of industry, wastage may have lower reusable value.
12.5 Keywords

Compiled Cost: presentation of complete cost in a accurate way.
Manufacturing Plant: A plant consisting of one or more buildings with facilities for
manufacturing.
Mining Units: Specified area of plant from which minerals are extracted.

Scrap: A small piece or amount left over.

12.6 Review Questions

1. Define Process Costing and explain its working procedure.
2. Distinguish between process Costing and Job Costing.
3. Discuss the process Costing and explain its objectives.

4. An article has to undergo three different processes before it becomes ready for sale. From
the following information, find out the cost of production of that article, if 200 articles were
manufactured upto 31st July, 2007:

Expenses of 200 articles
Manufacturing Refining Finishing
process (`) process (`) process (`)

Direct materials 2,000 1,000 750
Direct wages 1,500 2,500 1,000
Direct expenses 400 200 300

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