PROCESS COSTING
Process costing is a method of costing used mainly in manufacturing where units are
continuously mass-produced through one or more processes. Examples of this include the
manufacture of erasers, chemicals or processed food.
The Coca-Cola Company uses a process cost system in its bottling plants because it
manufactures similar kinds of products. This means that the cost of final products is the same.
The process cost system also helps track the cost of the company's beverages during production.
Format of process Account:
PROCESS ACCOUNT
PARTICULARS UNITS RS PARTICULARS UNITS RS
To RM XX XXX By Normal loss XXX XXX
D. Material XXX Abnormal Loss XX XXX
D. Wages XXX Output transfer to XX XXX
next process
D. Labor XXX
D. Expenses XXX
Production O/H XXX
Abnormal gain XXX XXX
TOTAL XXX XXX TOTAL XXX XXX
ABNORMAL LOSS ACCOUNT
Dr Cr
PARTICULARS UNITS RS PARTICULARS UNITS RS
To Process a/c XXX XXX By bank XXX XXX
By costing P&L XXX XXX
a/c
TOTAL XXX XXX TOTAL XXX XXX
ABNORMAL GAIN
Dr Cr
PARTICULARS UNITS RS PARTICULARS UNITS RS
To Normal Loss XXX XXX By Process a/c XXX XXX
To costing XXX XXX
transfer to P&L
a/c
TOTAL XXX XXX TOTAL XXX XXX
1. Product A is opting after it passes through 3 distinct process the following information
opting from the account for week ending 31/12/22:
PROCESS
PARTICULARS TOTAL
I II III
D. Material 7542 2600 1980 2962
D. Wages 9000 2000 3000 4000
Production O/H 9000 - - -
Output during week 950U 840U 750U
Normal Loss 5% 10% 15%
Sales of scrap per unit Rs 2 Rs 4 Rs 5
1000 Units at the rate of Rs 3 each where introduce in process –I there were no stock of
material or work in progress at the beginning or at the end of the period. The output of
each process passes directly next process and finally to finished stock. Production
Overhead is recovered at 100% of direct wages. Prepare Process Cost Account.
2. A Product passes through 3 process for the month ending 31/12/22. The following are the
details:
PROCESS
PARTICULARS TOTAL
I II III
D. Material 84,820 20,000 30,200 34,620
D. Labor 1,20,000 30,000 40,000 50,000
D. Expenses 7,260 5,000 2,260 -
Production O/H 60,000 - - -
Normal Loss 10% 5% 10%
Sales of scrap per unit 3 5 6
Production in unit 920 870 800
1000 Units at the rate of Rs 50 per unit where issued to process –I. Production Overhead
is to be allocated on the basis of direct labor. Prepare Process Account., Abnormal gain
A/c, and Abnormal loss a/c.
3. The XYZ Company product passes through 2 distinct process X and Y and then to the
finished stock.
Process X 5% of the units entering the process. Process Y 10% of the units entering the
process. The scrap value of wastage in Process X is Rs 8 per 100 units and Process Y Rs
10 per 100 units.
PARTICULARS X Y
Material 6000 3000
Wages 7000 4000
Manufacturing Expenses 2000 2000
Output Transfer 9500 8500
10,000 units where brought into Process X costing Rs5000. Prepare process account
showing the cost of output.
4. In a factory the product passes through 2 processes A and B. A loss of 5% is allowed to
the Process A and 2% in Process B. Nothing being realized by disposal of wastage.
During April 2017 10,000 Units of material costing at the rate of Rs6 per unit introduced
to Process A a/c. the other cost are as follows:
PARTICULARS A B
Material - 6140
Labor 10,000 6000
Overhead 6000 4600
Output 9300 9200
Output was which where transferred to the warehouse 8000 units of finished product was
sold at the expenses where Rs2 per unit. Prepare Process a/c and statement of Profit or
Loss a/c.
5. Product X passes through 3 distinct process. You are required to prepare process a/c nd
other a/c from the following information:
PROCESS
PARTICULARS
I II III
D. Material 52,000 39,600 59,240
D. Labor 40,000 60,000 80,000
Normal Loss 5% 10% 15%
Sales of scrap per unit Rs 40 Rs 80 Rs 100
Output Actual 950 840 750
1000 Units at the rate of Rs 60 per unit where introduced to process I. Production O/H of
1,80,000 Rs are to be distributed 100% on direct wages. The selling price of 800 units at
the rate of 25 each. Administrative expenses is Rs 4 per unit, production expenses is Rs 2
per unit and selling and distribution expenses 3 per unit. Prepare statement of profit and
loss a/c.