How to prepare the process cost? Illustration with example
What is process costing?
If an product, is manufactured and can be converted into a different product by modifying it, this account is used for calculate the cost of such goods,
Why Need process costing?
stock valuation
Calculate the cost value of the product.
Usually stock valuation are, raw material,WIP finished goods But the value of the product here is different
how to prepar the process costing ?
for example
mobile parts assembling company in india
purchased 1000 pieces board $10000
purchased 1000 pieces battery from power battery industry $2000
purchased was 1000 pieces display from samsung $15000
The camera was purchased from Sony for 2000 pieces $2000
other manufacture unit purchased $100000
Software $120000
production information
800 battery was fitting board,charges $800
700 display attached board,charges $1400
1400 camera fitting the board ,charges $400
other manufetre parts fitting on board $70000 ,charges $4000
Software $84000 and charges $$2000
50 battery was sold to spare part wholesalers
50 display was sold to spare part wholesalers
find out closing stock value and cost price of each product
| Debit | credit | ||
| particular | Amount | particular | Amount |
|---|---|---|---|
| purchase board(1000) | 10000 | closing board (200) | 2000 |
| purchased battery(1000) | 2000 | closing battery (150) | 300 |
| charges | 800 | sale battery(50) | 100 |
| prcess I (800 unit cost) transfer to process II | 10400 | ||
| 12800 | 12800 |
| Debit | credit | ||
| particular | Amount | particular | Amount |
|---|---|---|---|
| transfer from process I | 10400 | closing display | 3750 |
| purchased display(1000) | 15000 | sale display (50) | 750 |
| charges | 1400 | process I (100 unit closing) | 1300 |
| process II (700 unit cost) transfer to process III |
21000 | ||
| 26800 | 26800 |
| Debit | credit | ||
| particular | Amount | particular | Amount |
|---|---|---|---|
| transfer from process II | 21000 | closing camera | 600 |
| purchased camera(2000) | 2000 | process III (700 unit cost) transfer to process IV |
22800 |
| charges | 400 | ||
| 23400 | 23400 |
| Debit | credit | ||
| particular | Amount | particular | Amount |
|---|---|---|---|
| transfer from process III | 22800 | closing manufacture parts | 30000 |
| purchased manufacture parts | 100000 | process IV (700 unit cost) transfer to process IV |
94800 |
| charges | 2000 | ||
| 124800 | 124800 |
| Debit | credit | ||
| particular | Amount | particular | Amount |
|---|---|---|---|
| transfer from process IV | 94800 | closing Software | 36000 |
| purchased Software | 120000 | prcess V (700 unit cost) per unit cost $261 |
182800 |
| charges | 4000 | ||
| 218800 | 218800 |
-
cost prices $106712 per unit cost $261
closing stock
| particular | amount |
|---|---|
| closing bord | 2000 |
| closing battery | 300 |
| closing display | 1300 |
| closing cemara | 600 |
| closing manufacture parts | 30000 |
| closing Software | 36000 |
| closing stock | 70200 |
how to prepare the process costing?
It is possible to estimate the cost in advance " It is possible to estimate the cost and cost of goods before production, but the estimated cost is different than the actual cost.(top the account of direct production record.but here some of estimate and actual happened you know that)
Daily Milk Company Purchase 10000 Liter Milk $5000
- north side 4000 liter
- south side 2500 liter
- east side 1500 liter
- west side 2000 liter
management "production order"
- 8000 milk packed to sale (cost $400)package $114
- 800 curd produced (cost $400) package $171
- 600 butter production (cost $ 410) package $ 300
- 400 Ghee produced (cost $188) package $80
management estimates loss(1 kg= 1 liter)
| particular | quantity |
|---|---|
| purchsed milk (10000 liter) | 10000 |
| milk packed(8000 liter) | (-)8000 |
| process I output | 2000 |
| normal loss (50 kg curd) | (-)50 |
| curd (800 kg packed) | (-)800 |
| process II output | 1150 |
| normal loss(100 liter) | (-)100 |
| butter(600 kg packed) | (-)600 |
| process III output | 450 |
| normal loss(50 kg) | 50 |
| ghee(400 liter packed) | 400 |
| - | nil |
production department with production statement
| Debit | credit | |||||
| particular | liter | Amount | particular | liter | Amount | |
|---|---|---|---|---|---|---|
| purchased | 10000 | 5000 | milk produced | 8000 | 4434 | |
| cost | 400 | from process I transfer to 2000 liter milk for curd produced(II) | 2000 | 1080 | ||
| package cost | 114 | |||||
| 10000 | 5514 | 10000 | 5514 | |||
working note
- per liter milk cost (milk purchsedt+ cost=5400/10000=0.54 )
- 8000 milk cost (8000*0.54=4320 + packed =4434) per liter $0.56
- 2000 milk cost (2000*0.54=1080)
| Debit | credit | |||||
| particular | liter | Amount | particular | kilogram (kg) | Amount | |
|---|---|---|---|---|---|---|
| process I milk | 2000 | 1080 | curt | 800 | 763 | |
| cost | 400 | normal loss | 50 | 37 | ||
| packing | 171 | abnormal loss | 10 | 7.4 | ||
| from process II transfer to 1140 kg curd for butter produced | 1140000 | 843.6 | ||||
| 2000 | 1651 | 2000 | 1651 | |||
working note
- 1 liter = 1000gram2000 liter milk through produce 1940 kg curd. 60 kg loss
- 1 kg curt cost (milk cost+ cost=1080+400=1480/2000=0.74 )
- 800 kg curd cost (800*0.74=592 + packing =763)
- normal loss 50 kg (50*0.74 = $37)
- abnormal loss 10 kg (10*0.74 = $7.4)
- 1140000 kg curd move to butter produced (1140*0.74 = $843.6)
| Debit | credit | |||||
| particular | kg | Amount | particular | kg (kg) | Amount | |
|---|---|---|---|---|---|---|
| process II Curd | 1140 | 844 | butter | 600 | 960 | |
| cost | 410 | normal loss | 100 | 110 | ||
| packing | 300 | |||||
| abnormal gain 30 mililiter | 30 | 33 | from process III transfer to 470 kg butter for ghee produced | 470 | 517 | |
| 1170 | 1587 | 1170 | 1587 | |||
working note
- 1140 kg curd Through Produce 1070 Kg butter. 70 Kg Loss.
- 1 kg butter cost (curd cost+ cost=844+410=1254/1140=1.1 )
- 600 kg butter cost (600*1.1=660 + packing =960)
- normal loss 100 kg (100*1.1 = $110)
- abnormal gain 30000 (300000/1000*1.1 = $33)
- 470kg butter move to ghee produced (470000/1000*1.1 = $517)
| Debit | credit | |||||
| particular | liter | Amount | particular | kg | Amount | |
|---|---|---|---|---|---|---|
| process III butter | 470 | 517 | ghee | 420 | 710 | |
| cost | 188 | normal loss | 50 | 75 | ||
| packing | 80 | |||||
| 470 | 785 | 470 | 785 | |||
working note
- 470 kg butter throught produced 420 liter ghee.50 liter loss
- 1 liter ghee cost (butter cost+ cost=517+188=705/470*=1.5 )
- 420 kg ghee cost (420*1.5=630 + packing =710)
- normal loss 50 kg (50*1.5 = $75)
actual output
| particular | Quantity |
|---|---|
| purchsed milk | 10000 |
| milk packed | (-)8000 |
| process I out put | 2000 |
| normal loss | (-)50 |
| abnormal loss | (-)10 |
| curd | (-)800 |
| process II out put | 1140 |
| normal loss | (-)100 |
| abnormal gain | (+)30 |
| butter | (-)600 |
| process III out put | 470 |
| normal loss | (-)50 |
| chiess | 420 |
| - | nil |
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