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Contents:
1. Introduction to Process Costing
2. Normal Loss
3. Abnormal Loss
4. Abnormal Gain
5. Process Costing with Closing Work-in-Progress
6. Opening Work-in-Progress: Weighted Average Cost Method
7. Opening Work-in-Progress: FIFO Method
8. Work-in-Progress and Losses
9. Process Costing: Joint Products and By-Products
10. Chapter Review
Introduction
Aim:
Accountants play a crucial role in management decision-making by producing accurate and useful information to support costing, management accounting, and the application of quantitative methods in financial management.
By the end of this chapter, you will be able to:
- Explain process costing
- Identify when process costing is appropriate
- Calculate the cost of output from a process, including losses and opening and closing WIP
- Differentiate between joint products and by-products
- Calculate the cost of joint products and by-products
1.1 Process Costing
Process costing offers a system for costing continuous production, where output is measured in total quantities or in large quantities of small units. It accounts for direct materials and conversion costs (direct labour and production overheads) and adjusts for expected losses during production.
**1.2 Situations Where Process Costing Is Appropriate**
Process costing is ideal for continuous production systems, such as chemicals manufacture, liquid production, and high-volume, low-cost food items. It helps manage and measure work-in-process and accounts for any production losses.
**1.3 Process Costing Issues Introduced**
Understanding process costing can be complex, but using a process account helps focus on the main issue: collecting costs on the debit side and allocating them to the output.
**2.1 Normal Loss**
Process manufacturing often involves some loss or wastage, resulting in output quantities being less than input quantities. These losses can be either normal or abnormal.
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