PROCESS COSTING
1)To find the cost per unit for valuation of units to be trans. to next process and also
for abnormal, loss or gain = Total process cost – Salvage value of normal spoilage
Total units introduced – Normal loss in units
2) To find abnormal loss (or) gain (all in units):
= Units from previous process + fresh units introduced – Normal loss – units
transferred to next process (If the result is positive then abnormal loss. If
negative then abnormal gain)
3) In case of opening WIP and closing WIP are given then there are different
methods of valuation of closing WIP
i) FIFO Method ii) LIFO Method
iii) Average Method iv) Weighted Average Method
4) Various statements to be prepared while WIP is given:
i) Statement of equivalent production
ii) Statement of cost
iii) Statement of apportionment of cost
iv) Process cost a/c
5) FIFO Method: In these method total units transferred to next process includes
full opening stock units and the closing stock includes the units
introduced during the process. In this method the cost incurred
during the process is assumed as to be used
a) First to complete the units already in process
b) Then to complete the newly introduced units
c) For the work done to bring closing inventory to given state of completion
6) LIFO Method = Cost incurred in process is used for:
a) First to complete newly introduced units
b) Then to complete units already in process in this method closing stock is
divided into two :
i) Units which represent opening stock but lie at the end of the period
ii) Newly introduced units in closing stock.
7) Average Method: In this method
a) No distinction is made between opening stock and newly introduced material.
b) In finding cost per unit, cost incurred for opening stock is also to be added with
current cost. (This addition is not done in LIFO & FIFO method as cost
incurred in that process is only taken)
8) Weighted average method: This method is only used when varied product in
processed through a single process. General procedure is adopted here.
a) Statement of weighted average production should be prepared. Under this
statement output of each products is expressed in terms of points.
b) Cost of each type of product is computed on basis of Points.
Points of vital importance in case of Abnormal Gain / Loss:
a) Calculate cost per unit by assuming there is no abnormal loss / gain
b) Cost per unit arrived above should be applied for valuation of both abnormal
Loss/gain units and output of the process.
c) Separate a/c for both abnormal loss/gain is to be prepared.
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