Today in this article we shall discuss
and understand about the Process Costing of Cost Accounting, features of
process costing, merits of process costing and treatment of loss or wastage.
Process Costing
Process Costing is a method of costing
that traces accumulates and allocates direct and indirect costs of
manufacturing process. The process costing helps to know the cost per unit in a
given process. The process costing is carried out to ascertain the cost
involved in each stage of manufacturing process. This method of costing is
applicable where there is sequence of activities continuously carried to get
the final product. Process costing is adopted in Sugar industry, automobile
industry, oil industry, iron and steel industry, textile industry, milk
diaries, cement industry, chemical industry, leather and taining industry and
plastic industry.
Features of Process Costing
§ There production of goods involves a series of activities.
§ The finished product is the result of two or more processes.
§ The goods are to be produced on a large scale.
§ It is the costing of the process.
§ Each process is distinct and is predefined.
Merits
of Process Costing
§ In helps to compute the cost at shorter intervals.
§ It helps to assess the cost of the process and finished goods.
§ It helps to control the cost over production and monitor the costs
on regular basis by tracking the process cost against the standard or bench
mark.
Treatment of Loss or Wastage
It may be
·
Normal
Loss
Normal Loss
refers to the loss which is inevitable and unavoidable in production process.
It is the part of production cost and separate calculation not required as it
arises due to the shrinkage, evaporation and so on.
·
Abnormal
Loss
It is the loss
which is not expected and would have been avoided with the help of proper
measures. It is the excess loss then the normal loss. This loss arises due to
machinery breakout, workers negligence, and inefficiency in management and so
on. It can be avoided by proper management.
§ Abnormal Gain:
It
refers to the output in excessive then the normal or expected output. This gain
is unexpected and unpredicted. It takes place unexpected at the end of the
production by producing more or excessive units than predicted.
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