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DECLARATION BY STUDENT
I SAGAR MADAN PATIL, ROLL NO.15-9533, The student of M.Com
Signature Of The
ACKNOWLEDEMENT
AT BEGINNING I WOULD LIKE TO THANK GOD FOR HIS
BLESSING. I AM VERY MUCH THANKFUL TO MY PROF. Mr.
PRASHANT NAIK, PROF. DR. JANARDAN HOTKAR
MY
LIMAYE
ENCOURAGEMENT.
I ALSO LIKE TO THANK MY FAMILY MEMBERS AND
FRIENDS FOR THEIR CO-OPERATION & HELP AND ALSO
WOULD EXPRESS MY GRAITUDE TO ALL THOSE WHO
HELPED ME DIRECTLY OR INDIRECTLY TO COMPLETE MY
PROJECT.
I ALSO TAKE THE OPPORTUNITY TO SHOW MY SINCERE
GRATITUDE TO MY PARENTS.
INDEX
SR NO.
TITLE
1.
CHAPTER- I
INTRODUCTION.
OBJECTIVE OF STUDY.
REASEARCH METHDOLOGY.
LIMITATIONS.
SIGNIFICANCE.
2.
CHAPTER- II
TYPES OF PROCESS COSTING.
COSTING PROCEDURE.
INTER-PROCESS PROFIT.
EQUVALENT PRODUCTION.
3.
CHAPTER- III
REVIEW OF LITERATURE.
OBSERVATION.
4.
CHAPTER- IV
FINDINGS & SUGGESTIONS.
CONCLUSION.
WEBLIOGRAPHY & BIBLIPGRAPHY.
CHAPTER : I - INTRODUCTION
MEANING
OF
COST ACCOUNTING
Cost accounting is a process of collecting, analyzing, summarizing
and evaluating various alternative courses of action. Its goal is to advise
the management on the most appropriate course of action based on the
cost efficiency and capability. Cost accounting provides the detailed cost
information that management needs to control current operations and
plan for the future.
Since managers are making decisions only for their own organization,
there is no need for the information to be comparable to similar
information from other organizations. Instead, information must be
relevant for a particular environment. Cost accounting information is
commonly used in financial accounting information, but its primary
function is for use by managers to facilitate making decisions.
Unlike the accounting systems that help in the preparation of financial
reports periodically, the cost accounting systems and reports are not
subject to rules and standards like the Generally Accepted Accounting
Principles. As a result, there is wide variety in the cost accounting
systems of the different companies and sometimes even in different parts
of the same company or organization.
Origins
OBJECTIVES:
IT IS COLLECTED
JOURNALS,
MAGAZINES,
BULLETIN,
LIMITATION:
DUE
TO
LACK
OF
TIME
FACTOR
AND
SIGNIFICANCE:
The project is based and prepared on subject namely
Process Costing with Special Reference to Interprocess
profits & Equivalent Production. This project is simple and
easy to understand.
I followed a proper structure i.e. Introduction, Defination,
Step, Types etc. with the help of that we can easily come to
know the concept of project.
CHAPTER- II
TYPES OF PROCESS COSTING:
Why have three different cost calculation methods for process costing,
and why use one version instead of another? The different calculations
are required for different cost accounting needs. The weighted average
method is used in situations where there is no standard costing system,
or where the fluctuations in costs from period to period are so slight that
the management team has no need for the slight improvement in costing
accuracy that can be obtained with the FIFO costing method.
Alternatively, process costing that is based on standard costs is required
for costing systems that use standard costs. It is also useful in situations
where companies manufacture such a broad mix of products that they
have difficulty accurately assigning actual costs to each type of product;
under the other process costing methodologies, which both use actual
costs, there is a strong chance that costs for different products will
become mixed together. Finally, FIFO costing is used when there are
ongoing and significant changes in product costs from period to period
to such an extent that the management team needs to know the new
costing levels so that it can re-price products appropriately, determine if
there are internal costing problems requiring resolution, or perhaps to
change manager performance-based compensation. In general, the
simplest costing approach is the weighted average method, with FIFO
costing being the most difficult.
COSTING PROCEDURE:
Cost of Process:
The cost of the output of the process (Total Cost less Sales value
of scrap) is transferred to the next process. The cost of each
process is thus made up to cost brought forward from the previous
process and net cost of material, labour and overhead added in that
process after reducing the sales value of scrap. The net cost of the
finished process is transferred to the finished goods account. The
net cost is divided by the number of units produced to determine
the average cost per unit in that process. Specimen of Process
Account when there are normal loss and abnormal losses.
Dr.
Particulars
Process I A/c
Units
Cr.
Amount Particulars
Units
Amount
To
Basic xx
Material
To Direct Material xx
Xxx
By Normal Loss
Xx
xx
Xx
xx
To Direct Wages
xx
Xx
By
Abnormal Xx
Loss
By Process II A/c Xx
To
Production xx
overhead
Xx
To
Cost
of xx
Rectification
of
Normal Defect
To
Abnormal
Gains
Xx
Xxx
Process Losses:
Xx
Xxx
(Output trf
next process
By Process
stock A/c
xx
to
I Xx
Xxx
xx
xxx
For example, if you doing the business of timber on the basis of their
weight. It is sure that after cutting of tree, weight of wood will decrease.
So, this loss is normal loss. In process accounts credit side, we just
show the normal losss units. Now, our total produced units will
decrease. This will decrease our cost of production in any process. For
example: If total cost of process A is Rs. 10,000. When we produce 100
units in A process, we have checked that due to natural reasons, we have
just 90 units. Now, in A Process Account, we will show 100 units in
debit side and 10 units of normal loss in credit side without writing its
amount. Due to this our total cost of Rs. 10,000 will of 90 units. It
means, cost per unit has increased from Rs. 100 per unit to Rs. 111 per
unit.
Dr.
Cr.
Particulars
Units
Amt Particulars
Units
Amt
To process A/c
Xx
xx
Xx
Xx
By Costing P&L Xx
A/c
Xx
Xxx
xxx
By bank A/c
Xxx
Xxx
Process A Account
Amount in
Credit Side
Units
Rs.
Raw material
100
1000
Normal Loss
10
Sale of Scrap of
Other Expenses 602
normal wastage 10 units X Rs. 3 each
*Abnormal Loss
15
Process B ( Output )
75
- balancing figure
100
1602
100
Debit Side
Units
Amount in
Rs.
30
262
1310
1602
Dr.
To Normal loss
A/c
Units
Rs.
Particulars
By Process A/c
Cr.
Units
Rs.
XXX XXX
XXX XXX
XXX XXX
XXX XXX
INTERPROCESS PROFITS:
Normally the output of one process is transferred to another
process at cost but sometimes at a price showing a profit to the
transfer process. The transfer price may be made at a price
corresponding to current wholesale market price or at cost plus an
agreed percentage. The advantage of the method is to find out
whether the particular process is making profit (or) loss. This will
help the management whether to process the product or to buy the
product from the market. If the transfer price is higher than the cost
price then the process account will show a profit. The complexity
brought into the accounting arises from the fact that the inter
process profits introduced remain a part of the prices of process
stocks, finished stocks and work-in-progress. The balance cannot
show the stock with profit. To avoid the complication a provision
must be created to reduce the stock at actual cost prices. This
problem arises only in respect of stock on hand at the end of the
period because goods sold must have realized the internal profits.
The unrealized profit in the closing stock is eliminated by creating a
stock reserve. The amount of stock reserve is calculated by the
following formula.
Stock Reserve = Transfer Value of stock x Profit included in transfer
Price
Transfer Price
OF PRODUCTION?
Equivalent units of production are a term applied to the work-inprocess inventory at the end of an accounting period. It is the number of
completed units of an item that a company could theoretically have
produced, given the amount of direct materials, direct labor, and
manufacturing costs incurred during that period for the items not yet
completed. In short, if 100 units are in process but you have only
expended 40% of the processing costs on them, then you are considered
to have 40 equivalent units of production.
Equivalent units are a cost accounting concept that is used in process
costing for cost calculations. It has no relevance from an operational
perspective, nor is it useful for any other type of cost derivation other
than process costing.
Equivalent units of production are usually stated separately for direct
materials and all other manufacturing expenses, because direct materials
are typically added at the beginning of the production process; while all
other costs are incurred as the materials gradually work their way
through the production process. Thus, the equivalent units for direct
materials are generally higher than for other manufacturing expenses.
When you assign a cost to equivalent units of production, you typically
assign either the weighted of the beginning inventory plus new
equivalent units are the number of complete units that could have been
obtained from the materials and effort that went into the partially
complete units.
Weighted-Average Method
particular
input
Particulars
units
Output
% Work Equivalent
units
Done
units
Op. WIP
1000
Op. WIP
1000
40
400
Units intro
10000
Completed
8000
100
8000
Normal loss
1100
Cl. WIP
800
75
600
Abnormal
loss(bal. fig)
100
100
100
1100
11000
CHAPTER- III
9100
REVIEW OF LITERATURE:
OBSERVATION:
of
project
i.e.
introduction,
meaning,
definition,
CHAPTER- IV
Production is contentious.
Product is homogeneous and standardized.
Suitable where goods are made for stock
Cost is calculated at the end of the period.
The output of one process transferred to another process as
input.
Suggestion: The computation of average cost is more difficult
in those cases where more than one type of products is
manufactured so, it is suggested that there should be need to
change or upgrade process costing to overcome and solved that
kind of limitations.
CONCLUSION: