Batch costing & Process costing By: Jyotsna Khaitan
Batch Costing: • It is a modified form of job costing where articles are manufactured in definite batches and the stock is sold to customers create demand for the goods. Batch means ‘lots’ in which articles are the articles are manufactured. • Batch costing method is adopted in such cases to calculate the cost of each such batch. Cost per unit is ascertained by dividing the total cost of a batch by number of items produced in that batch. In order to do that a Batch Cost Sheet is prepared.
Illustration: Component ‘Gold’ is made entirely in cost centre 100. Material cost is 6 paise per component and each component takes 10 minutes to produce. The machine operator is paid 72 paise per hour, and machine hour rate is Rs. 1.50. The setting up of the machine to produce the component ‘Gold’ takes 2 hours 20 minutes. On the basis of this information, prepare a cost sheet showing the production and setting up cost, both in total and per component, assuming that a batch of: • (a) 10 components, • (b) 100 components, and • (c) 1000 components are produced.
Pro rocess costi ting Process costing is a method of costing under which all costs are accumulated for each stage of production or process, and the cost per unit of product is ascertained at each stage of production by dividing the cost of each process by the normal output of that process Features of Process Costing: • The production is continuous • The product is homogeneous • The process is standardized • Output of one process become raw material of another process • The output of the last process is transferred to finished stock • Costs are collected process-wise • Both direct and indirect costs are accumulated in each process • If there is a stock of semi-finished goods, it is expressed in terms of equivalent units • The total cost of each process is divided by the normal output of that process to find out cost per unit of that process.
Proce cess ss loss sses es & wastages: s: 1. Normal process loss: It is the usual percentage of wastage arising during the process of production. It is unavoidable and so charged from the customers as additional cost of goods produced. This loss is charged to the ‘effectives’, i.e. the ‘good’ units arising out of the process. 2. Abnormal process loss: It is the loss in excess of the normal process loss and is due to carelessness, bad plant design, etc. • Calculations: • Find out the ‘Normal -Loss'. • Find out the cost of production per unit of the relevant process assuming that there is no abnormal-loss. • Multiply the lost abnormal units with the cost per unit. • Debit the ‘Abnormal - wastage Account’ and credit the relevant Process -Account with the amount. • The balance now in the process account is the cost of good units produced by the process. • ‘Abnormal Wastage Account’ will be closed by transferring it to the Costing -profit-and-loss- account. 3. Abnormal effectives : In case the actual production of a process is more than the expected production, the excess is known as abnormal effectives. This amount is debited to the relevant Process- account and credited to the ‘abnormal -effectives-account' which will be closed by transferring the balance to costing-profit-and-loss.
Illustration: The product of a company passes through three distinct processes to completion – A,B and C. from the past experience it s ascertained that loss incurred (normal wastage) in each process as – A-3%, B-5% and C-8%. The loss of each process possesses a scrap value. The loss of processes A is sold at Rs.0.25 per unit, for B Rs. 0.50 per unit and that of C at Rs.1 per unit. Process A (rs.) Process B (rs.) Process C (rs.) Materials consumed 1,000 1,500 500 Direct labour 5,000 8,000 6,500 Direct expenses 1,050 1,188 2,009 10,000 units have been issued to process A at a cost of Rs.10000 in the beginning of October, 2015. the output of each process has been as under: A- 9500, B- 9100 and C – 8100 units. There is no work in progress in any process. Prepare process accounts, abnormal wastage and abnormal effectives accounts.
(also called Abnormal Effectives Account) Normal loss= Total normal wastage – Total sale proceeds thanks
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