Table of Contents
Process Costing
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 Application
Process Costing is Applicable in Industries:
1. Iron and Steel Industry
2. Automobile Industry
3. Cement Industry
4. Chemical Industry
5. Sugar Industry
6. Plastic Industry
7. Textile Industry
8. Paper Industry
9. Paints and Varnish Industries
10. Industries Producing Drugs and Medicines
11. Ice Plants
12. Soap Industry
13. Oil Industry
14. Leather Industry
15. Flour Milling Industry
16. Biscuit Factories
17. Aluminium Industry
18. Mining of Gold, Silver, Zinc, Sulphur, etc.
19. Timber Industry
20. Perfumery Industry
21. Glass Industry
22. Box-making Industry
23. Meat Packing
24. Concerns Producing Explosives
25. Public Utilities Companies—Water supply, Electricity, etc.
Features of Process Costing
- The plant has various divisions, and each division is a stage of production.
- The production is carried out continuously, by way of the simultaneous, standardized and sequential process.
- The output of a process is the input of another.
- The production from the last process is transferred to finished stock.
- The final product is homogeneous.
- Both direct and indirect costs are charged to the processes.
- The production may result in joint and by-products.
- Losses like normal and abnormal loss occur at different stages of production which are also taken into consideration while calculating the unit cost.
- The output of one process is transferred to another one at a price that includes the profit of the previous process and not at the cost.
- At the end of the period, if there remains the stock of finished goods, then it is also expressed in equivalent completed units.