Process Cost Accounting System Lecture – 19 Main Ahmad Farhan
Process Costing There is large scale production of homogenous units. The manufacturing process does not change. Departmentalization is followed in manufacturing process. Proceeding department’s output is the raw material for its succeeding department. Out put / production is not inline with the customers specific orders but based on market demand. Each Department is a cost centre. Cost is Accumulated at each department level.
Beverage manufactures Printing industry Ball point manufactures Examples Beverage manufactures Printing industry Ball point manufactures Ice Cream manufactures Soap manufactures Tooth Paste manufactures Brush manufactures Paints manufactures Sugar manufactures
Difference Between Job Order & Process Costing Nature Job Order Costing Process Costing 1- Base Customers specification. Market demand (carried on each Department). 2- Product /out put/Cost unit Heterogeneous cost units Homogenous cost units 4- Cost Accumulation Specific job assigned a unique job code. Department wise. 5- Cost per unit Cost of completed Job. Average unit cost 6-Accounting Systems (a) Source Document Job order Cost Sheet. Process cost sheet or cost of production Report. (B) Ledger Accounts W.I.P Job A/c Cost of job Completed A/c. W.I.P Dept A/c I. W.I.P Dept A/c II. Finished Goods A/c. (C) Pricing Cost+ Margin or fixed (based on customer specification or precious of order. Fixed Price.
Source Documents Direct Material Direct Labor Factory Over Head Purchase Requisition / Material Requisition / Store Requisition Clock Cards / Smart Cards. First Direct Material than arrow and than box as on ward O.A.R
Elements of Cost of Production Report Quantity schedule. Cost accumulated in the department/ process. Calculation of equivalent units produced. Calculation of cost per unit. Accounting treatment / apportionment of the accumulated cost.
Cost of Production Report I- Quantity Schedule: Units put into the process ** Units completed in this process & transferred to next department. ** Units not yet completed at the end of the Period. ** ** II- Cost Accumulated In The Department / Process: Direct Material Cost ** Direct Labor ** Factory Overhead (Applied) ** ---
Cost Of Production Report III- Calculation Of Equivalent Units Produced 100% of completed units + % completed of the in process units IV- Calculation Of Per Unit Cost = Total Cost Equivalent Units Produced
Cost Of Production Report Accounting Treatment 1- Finished goods 2- Closing Work in process