Table of Contents
Definition:-
Process Costing is defined as a branch of operation costing that determines the cost of a product at each stage, i.e. process of production. It is an accounting method which is adopted by the factories or industries where the standardized identical product is produced, as well as it passes through multiple processes for being transformed into the final product.
Process Costing is Applicable in Industries:
- Iron and Steel Industry
- Automobile Industry
- Cement Industry
- Chemical Industry
- Sugar Industry
- Plastic Industry
- Textile Industry
- Paper Industry
- Paints and Varnish Industries
- Industries Producing Drugs and Medicines
- Ice Plants
- Soap Industry
- Oil Industry
- Leather Industry
- Flour Milling Industry
- Biscuit Factories
- Aluminium Industry
- Mining of Gold, Silver, Zinc, Sulphur, etc.
- Timber Industry
- Perfumery Industry
- Glass Industry
- Box-making Industry
- Meat Packing
- Concerns Producing Explosives
- Public Utilities Companies—Water supply, Electricity, etc.
For Complete Notes on Process Costing Click Here
Cost of Production Report:-
The cost of production report summaries the data of quantity produced and cost incurred by each producing department. The purpose of this report is to provide data about quantity flow, total cost and unit cost during specific period. Cost of production report is also called “Process Cost Sheet”
Section of Cost of Production Report
Cost of production report is divided into Four Sections.
- Quantity schedule
- Cost charged to department/process
- Cost accounted for as follow
- Computations explanation
Quantity schedule
- The number of units started or put into process or received from the preceding department
- Units added in department
- The number of units completed and transferred to next department.
- The number of units completed and still in the department.
- The number of units still in process.
- The number of units lost in process during the period indicating whether normal loss or abnormal loss.
Cost charged to department/process
- In process at the beginning of the period.
- Transferred in form the preceding department.
- Cost of Direct materials, direct labour and Factory overhead.
- Adjustment of loss units.
Cost accounted for as follow
- This part shows distribution of total cost of department as shown in section 2.
- Cost transferred to next department or to finished goods.
- Cost of work completed but still in department.
- Cost of work still in process at the end of the period.
- Cost of abnormal loss.
Computation explanation
- Equivalent production
- Unit cost
- Adjustment for lost units for normal loss
- Cost of transferred out
- Cost of abnormal loss
- Cost of work in process ending inventory
For Complete Notes on Process Costing Click Here
Format of Cost of Production Report of 1st Department with loss.
Format of Cost of Production Report 1st Department With loss
_____Manufacturing Co.
Department 1st
Cost of Production Report
For the period ended____
Quantity Schedule: Units Units
Units started in process —
Units transfer out —
Units in process —
Units loss — —
Cost Charged to the Department Total Cost Unit Cost
Rs. Rs.
Cost added by this department
Material — —
Labor — —
Factory overhead — —
Total cost to be accounted for — — total unit cost
Cost Accounted for as Follow;
Cost transfer out (units transfer x total unit cost) —
Work In Process Closing Inventory
Material (process unit x unit cost x % age) —
Labor (process unit x unit cost x % age) —
Factory overhead (process unit x unit cost x % age) — —
Cost accounted for —
Working Notes
Equivalent Production units (EPU)
Units completed + units in process x % of completion
Per unit cost
Material =Material Cost/Equivalent Production Units
Labour =Labour Cost /Equivalent Production Units
Factory Overhead = Factory Cost/Equivalent Production Units
Normal Loss:-
- It arises due to internal factors
- It is recurring in nature
- It can be estimated in advance from the past experience
- It is not insurable loss
- It is unavoidable loss
Working Note:-
- In 1st Department normal loss show in the quantity schedule but no treatment of loss units.
- Due to normal loss per unit cost increase.
- Loss units cost recover form good/completed units.
- Normal loss occur during process
Example
Costs incurred and production made by Department No.1 of Rani beauty product Industry Limited during the month of January 2018 are as under.
Units put into process 26,000
Units completed and transfer out to next department 20,000
Units still in process 5,000
Units loss 1,000
Units still in process completed as to material 100%, 40% labour and factory overhead.
Cost incurred during the process are as follow;
Direct Materials Rs. 300,000
Direct Labour Rs. 110,000
Factory overhead Rs. 55,000
Required: Cost of production report based on the assumption that there were no units in process at the start of the period.
Solution
Rani Beauty Product Limited
Department 1st
Cost of Production Report
For the month of January, 2018
Quantity Schedule: Units Units
Units started in process 26,000
Units transfer out 20,000
Units in process 5,000
Units in process 1,000 26,000
Cost Charged to the Department Total Cost Unit Cost
Rs. Rs.
Cost added by this department
Material 300,000 12
Labor 110,000 5
Factory overhead 55,000 2.5
Total cost to be accounted for 4,65,000 19.50
Cost Accounted for as Follow;
Cost transfer out (20,000 units x 19.50) 3,90,000
Work In Process Closing Inventory
Material (5,000 units x 12 x 100 % ) 60,000
Labor (5,000 units x 5 x 40 %) 10,000
Factory overhead (5,000 units x 2.5 x 40 %) 5,000 75,000
Cost accounted for 465,000
Working Notes
Equivalent Production units (EPU)
Direct Materials = 20,000Units + 5,000 units x 100 % = 25,000 units
Direct Labour and FOH = 20,000Units + 5,000 units x 40 % = 22,000 units
Per unit cost
Material = 3,00,000/25,000 Units = Rs. 12
Labour = 1,10,000 / 22,000 Units = Rs. 5
Factory Overhead = 55,000/ 22,000 Units = Rs. 2.5
For Complete Notes on Process Costing Click Here
Practice Question with Answer
Cost of Production Report, 1st Department, With Loss. Costs incurred and production made by Department No.1 of Textile Industry Limited during the month of January 2018 are as under.
20,000 units were started in process out of which 18,500 units were transferred to the second department. 1,000 units were 50% completed as to direct materials and 25% converted. Remaining units were lost during process.
Direct materials Rs. 142,500, direct labour Rs. 85,500 and factory overhead Rs. 57,000 were charged to production.
Required: cost of production report for the month January.
Check figure: Unit Cost Rs. 15
Cost of Production Report, 1st Department, With Loss. H. Plastic industries produces plastic containers of standard size in two departments. Assembling and finishing. During August 2009 assembling department processed 4,500 units. 3,000 units were transferred to finishing department. 500 units were lost during production process. Remaining units were still in process estimated to be 80% complete as to materials and 60% complete as to labour and factory overhead. Following costs were measured by the department during August as follow:
Direct Materials Rs. 79,800
Direct Labour Rs. 18,000
Factory overhead Rs. 14,400
Required: Cost of production report based on the assumption that there were no units in process at the start of the month August.
Check figure: Unit Cost Rs. 30
Cost of Production Report, 1st Department, With Loss. The W. Company produces a single product. The company started its manufacturing operations on 1st June 2010 and costs of production for this month were as follows:
Direct Materials Rs. 150,000
Direct Labour Rs. 70,000
Factory overhead Rs. 50,000
Units started in process 1,200 Units. 1080 units completed and transferred to finished goods. Units in process on June 30, 2010, were 100. Degree of completion is material 50%, labour and factory overhead 30%. Remaining units were lost in process.
Required: Cost of production report based on the assumption that there were no units in process at the start of the month June.
Check figure: Unit Cost Rs. 240.851471
Cost of Production Report, 1st Department, With Loss. Honda manufacturing company manufactures a product in two departments. Data as to quantity produced and production costs incurred in the first department during October are as under;
42,500 units were started in process out of which 38,000 units were transferred to the second department. Remaining 4,000 units were completed as to material and ½ complete as to labour and factory overhead. Remaining 500 units were lost.
Direct materials Rs. 126,000, direct labour Rs. 80,000 and factory overhead Rs. 40,000 were charged to production.
Required: Cost of production report for the month October.
Check figure: Unit Cost Rs. 6
Cost of Production Report, 1st Department, With Loss. Hira manufacturing company manufactures a product in two departments. Data as to quantity produced and production costs incurred in the first department during November are as under;
10,300 units were started in process out of which 9,400 units were transferred to the second department. 600 units in process 50% complete. 300 units were lost during production.
Direct materials Rs. 242,500, direct labour Rs. 194,000 and factory overhead Rs. 145,500 were charged to production.
Required: cost of production report for the month November.
Check figure: Unit Cost Rs. 60
Cost of Production Report, 1st Department, With Loss.
Costs incurred and production made by the department NO. 1 of ABC Company during the month of July 2017 are as under;
6,000 units were started in process out of which 3,500 units were transferred to the second department. Units still in process at the end of process are 25% complete with respect to direct materials and 50% to labour and FOH. 500 were lost during process
Direct materials Rs. 45,000, direct labour Rs. 35,000 and factory overhead Rs. 25,000 were charged to production.
Required: cost of production report for the month July.
Check figure: Unit Cost Rs. 24.583333
Cost of Production Report, 1st Department, With Loss. Stag corporation Limited manufactures a product that passes through two departments. Production and costs or department No. 1 during the month of August 2017 are as under;
10,000 units were started in process out of which 7,000 units were completed and transferred to the second department. 1,000 units are lost during processing. This loss is regarded as normal manufacturing condition. At the end of month units still in process are 100% complete with respect to direct materials, 50% converted in department 1.
For the month of August in Department 1 costs of Direct materials Rs. 27,000 and converted Rs. 40,000 were charged to production.
Required: cost of production report for the month August.
Check figure: Unit Cost Rs. 8
- Cost of Production Report, 1st Department, With Loss.
Costs incurred and production made by the department NO. 1 of Cement Factory during the month of May 2017 are as under;
10,900 units were started in process out of which 9,000 units were transferred to the second department. Units still in process are 50% complete with respect to direct materials, labour and FOH. 900 units were lost during normal manufacturing process.
Direct materials Rs. 20,900, direct labour Rs. 31,350 and factory overhead Rs. 41,800 were charged to production.
Required: cost of production report for the month May.
Check figure: Unit Cost Rs. 9.90
- Cost of Production Report, 1st Department, With Loss.
Costs incurred and production made by the department NO. 1 of excellent manufacturing company during the month of May 2017 are as under;
5,400 units were started in process out of which 4,500 units were transferred to the second department. 500 units still in process. Units still in process are 50%, 40% and 60% completed as to direct materials, labour and FOH respectively.
Direct materials Rs. 50,000, direct labour Rs. 60,000 and factory overhead Rs. 40,000 were charged to production.
Required: cost of production report for the month May.
Check figure: Unit Cost Rs. 31.625606
- Cost of Production Report, 1st Department, With Loss.
Quantity schedule of first production department of Ghazi Manufacturing Company limited shows that 11,500 units were started in process during the month of June. 7,000 units were completed and transferred to next department. 4,000 units, 25% complete as to materials and 50% complete as to labour and factory overhead, were in process at the end of June. Remaining units were lost. Costs incurred by the department were materials Rs. 90,000 , labour Rs. 70,000 and factory overhead Rs. 50,000.
Required: cost of production report for the month May.
Check figure: Unit Cost Rs. 24.583333
- Cost of Production Report, 1st Department, With Loss.
Costs incurred and production made by the department NO. 1 of Cement Factory during the month of May 2017 are as under;
8,000 units were started in process out of which 5,000 units were transferred to the second department. Units still in process are complete with respect to 100% direct materials, and 50% complete as to labour and 25% to FOH. 1,000 units were lost during normal manufacturing condition.
Direct materials Rs. 25,000, direct labour Rs. 30,000 and factory overhead Rs. 20,000 were charged to production.
Required: cost of production report for the month May.