process costing of sugar industry

A PROJECT REPORT ON

“COST ACCOUNTING- PROCESS COSTING IN SUGAR INDUSTRY”

SUBMITTED BY MISS. MEERA HARESH BHANUSHALI ROLL NO: 6202 M.Com. SEM- I (ADVANCE ACCOUNTANCY) ACADEMIC YEAR: 2015-16

Under the guidance of PROJECT GUIDE PROF. M. S.GANAGI

SUBMITTED TO UNIVERSITY OF MUMBAI MULUND COLLEGE OF COMMERCE S N ROAD, MULUND (WEST) MUMBAI - 400080

Declaration from the Student I, MEERA HARESH BHANUSHALI R. No. 6202 Student of Mulund College Of Commerce, S. N. Road, Mulund (West) 400080, studying in M.Com Part- I hereby declare that I have completed the project on “COST ACCOUNTING PROCESS COSTING IN

SUGAR INDUSTRY” under the guidance of project guide Prof. M. S. Ganagi during the academic year 2015-16. The information submitted is true to the best of my knowledge.

Date: Place:

Signature

CERTIFICATE I, Prof. M. S. GANAGI, hereby certify that Mr/Miss MEERA HARESH BHANUSHALI R.No 6202 of Mulund College of Commerce, S. N. Road, Mulund (West), Mumbai -400080 of M.com Part I (Advanced Accountancy) has completed her project on

“COST

ACCOUNTING PROCESS COSTING IN SUGAR INDUSTRY” during the academic year 2015-16. The information submitted is true and original to the best of my knowledge.

____________________

___________________

Project Guide

External guide

_____________________

___________________

Co-coordinator

Date:

Principal

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Principal of Mulund College of Commerce DR. (Mrs.) Parvathi Venkatesh, Course - Coordinator

Prof. Rane and our

project guide Prof. M.S. Ganagi, for providing me an opportunity to do my project work on ““COST ACCOUNTING PROCESS COSTING IN SUGAR INDUSTRY” ”. I also wish to express my sincere gratitude to the non - teaching staff of our college. I sincerely thank to all of them in helping me to carrying out this project work. Last but not the least, I wish to avail myself of this opportunity, to express a sense of gratitude and love to my friends and my beloved parents for their mutual support, strength, help and for everything.

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Signature

INTRODUCTION:

Process costing is a form of operations costing which is used where standardized homogeneous goods are produced. This costing method is used in industries like chemicals, textiles, steel, rubber, sugar, shoes, petrol etc. Process costing is also used in the assembly type of industries also. It is assumed in process costing that the average cost presents the cost per unit. Cost of production during a particular period is divided by the number of units produced during that period to arrive at the cost per unit. process costing A process costing system is a technique used within the manufacturing industry to determine the total production cost of a unit of merchandise. It is particularly used in environments where production passes through multiple cost centers. For example, production within a large corporation may require that product move through more than one department, such as procurement, manufacturing, quality assurance and distribution. Each of these departments has its own budget. As a result, a process costing system must be in place to compile the respective costs undertaken by each group. The implementation of a process costing system comes with many advantages.

Method for determining the total unit cost of the output of a continuous production run (such as in food processing, petroleum, and textile industries) in which a product passes through several processes (or cost centers). It involves the following steps: (1) the 'total cost per process' is computed by estimating the number ofproducts passing through each process in a given period; (2) the 'unit cost per process' is computed by dividing the 'total cost per process' by the number of units passing through the process in the given period ; (3) the 'unit cost per process' is charged to each unit as it passes through each process so that, at the end of theproduction cycle, each product will have received an appropriate charge for each process through which it has passed.

A process costing system is a technique used within the manufacturing industry to determine the total production cost of a unit of merchandise. It is particularly used in environments where production passes through multiple cost centers. For example, production within a large corporation may require that product move through more than one department, such as procurement, manufacturing, quality assurance and distribution. Each of these departments has its own budget. As a result, a process costing system must be in place to compile the respective costs undertaken by each group. The implementation of a process costing system comes with many advantages.

Definition Process costing system applies when standardised goods are produced tom a series of interConnected

operations.

In some industries, the output produced emerges from a continuous process. An example might be

an oil refinery; Oil in

a raw state is input and subjected to

a process of purification. Refined oil emerges at the end of the process. Problems that arise in such situations include the attribution of materials costs and conversion

costs to units of finished output and the occurrence of losses during the process (spoilt or lost production).

The characteristics and application of process costing Process costing is used when identical items are continuously mass produced and manufacturing involves one or more processes. Examples of products requiring process costing include paint, food, chemicals and beer. Process costing systems typically have the following characteristics

- Costs are accumulated by cost centre with no attempt made to assign costs to specific batches. - Costs are accumulated based on a time period rather than a particular job. - Process accounts are maintained for each department or cost centre. - Completed costs from each department or cost centre become the raw materials for the subsequent department or cost centre. Typically, all materials are input at the start of a manufacturing process while labour and overhead costs (conversion costs) incurred to convert the materials into outputs occur uniformly throughout the process until goods are complete.

The outputs from the process may comprise completed and uncompleted units and there may also be spoiled units some of which are expected to arise from the process (normal loss) and others which are not anticipated (abnormal loss) Sometimes it is possible to sell spoiled units of production to generate a small income or scrap value. The difficulties associated with process costing relate to the allocation of costs incurred to the outputs obtained. As mentioned above outputs may include closing work in progress, normal loss, abnormal loss or abnormal gain and completed units which may incorporate opening work in progress that was completed during the period. How each of these outputs is accounted for using process Costing

Continuous production In the job order costing, costs were directly allocated to a particular job When standardised goods

or services result from a sequence of

repetitive and continuous operations, it is useful to work out the cost of each operation. Then because every unit produced may be assumed to have involved the same amount of work, costs for a

period are charged to processes or

operations, and unit costsare ascertained by dividing process costs by the quantity of output units produced This is known as process costing.

Series of interconnected operations Process costing applies when standardised goods are produced from a series of interconnected operations. Process costing system is employed by industries possessing following characteristics 1. There is mass production of a single product or two or more products in successive runs of scheduled duration e.g., vegetable canning or fruit juice bottling. 2. All units of output are exactly similar and are produced by the same manufacturing process. 3. Entire manufacturing process is divided into departments or processes, each performing a specific set of operations.

4. Completed output of each department, except the last one, is the raw materials for the next department. 5. Manufacturing operations may result in production of joint products or by products. 6. Production is not in response to customers' orders but in anticipation of demand. Examples of industries using Process Costing include: Bottling,Pharmaceuticals,Cement,Paint, Coal, Distilleries Electricity, Ice, Soap, Sugar, Canning ,Chemicals, Cooking oil, Electric appliances, Flour, Natural gas, Petroleum Products, Rubber, Steel, Textile. Under process costing, for the purpose of cost control, each department involved in manufacturing process is regarded as a cost centre and product costs are accumulated separately for each department. Cost Centre means a division or segment for which an individual is made responsible .for the incurrence of cost Departmental costs are passed through department work in process accounts and not t hrough a single work in process control account as

in job costing.

As all units are produced from the same raw materials and by same manufacturing operations, therefore, it is assumed that same cost is chargeable to each unit. Instead of accumulating cost of individual units, an average unit cost is computed by dividing total cost by total output of the period. Cost is associated only with departments

and

notwithjobs. It reduces clerical efforts for accumulation and analysis of cost. In

this way process costing is less expensive, as compared with job costing.

PROCESS COSTING is an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process. Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to be allocated to individual units of product. It assigns average costs to each unit, and is the opposite extreme of Job costing which attempts to measure individual costs of production of each unit. Process costing is usually a significant chapter. it is a method of assigning costs to units of production in companies producing large quantities of homogeneous products. Process costing is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture. CIMA defines process costing as "The costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Costs are averaged over the units produced during the period". Process costing is suitable for industries producing homogeneous products and where production is a continuous flow. A process can be referred to as the sub-unit of an organization specifically defined for cost collection purpose.

Types of Process Costing There are three types of process costing, which are: 1. Weighted average costs. This version assumes that all costs, whether from a preceding period or the current one, are lumped together and assigned to produced units. It is the simplest version to calculate. 2. Standard costs. This version is based on standard costs. Its calculation is similar to weighted average costing, but standard costs are assigned to production units, rather than actual costs; after total costs are accumulated based on standard costs, these totals are

compared to actual accumulated costs, and the difference is charged to a variance account. 3. First-in first-out costing (FIFO). FIFO is a more complex calculation that creates layers of costs, one for any units of production that were started in the previous production period but not completed, and another layer for any production that is started in the current period. There is no last in, first out (LIFO) costing method used in process costing, since the underlying assumption of process costing is that the first unit produced is, in fact, the first unit used, which is the FIFO concept.

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 performancebased compensation. In general, the simplest costing approach is the weighted average method, with FIFO costing being the most difficult

OBJECTIVES • the meaning of Process Costing and its importance • the distinction between job costing and process costing • the accounting procedure of process costing including normal loss abnormal loss (or) gain • the valuation of work-in-progress, using FIFO, LIFO average and weighted average methods • the steps involved in inter process transfer

THE IMPORTANCE OF PROCESS COSTING Costing is an important process that many companies engage in to keep track of where their money is being spent in the production and distribution processes. Understanding these costs is the first step in being able to control them. It is very important that a company chooses the appropriate type of costing system for their product type and industry. One type of costing system that is used in certain industries is process costing that varies from other types of costing (such as job costing) in some ways. In process costing unit costs are more like averages, the process-costing system requires less bookkeeping than does a job-order costing system. Thus, some companies often prefer to use the process-costing system.

WHEN PROCESS COSTING IS APPLIED?

Process costing is appropriate for companies that produce a continuous mass of like units through series of operations or process. Also, when one order does not affect the production process and a standardization of the process and product exists. However, if there are significant differences among the costs of various products, a process costing system would not provide adequate product-cost information. Costing is generally used in such industries such as petroleum, coal mining, chemicals, textiles, paper, plastic, glass, and food.

Companies need to allocate total product costs to units of product for the following reasons: 

A company may manufacture thousands or millions of units of product in a given period of time.



Products are manufactured in large quantities, but products may be sold in small quantities, sometimes one at a time (automobiles, loaves of bread), a dozen or two at a time (eggs, cookies), etc.



Product costs must be transferred from Finished Goods to Cost of Goods Sold as sales are made. This requires a correct and accurate accounting of product costs per unit, to have a proper matching of product costs against related sales revenue.



Managers need to maintain cost control over the manufacturing process. Process costing provides managers with feedback that can be used to compare similar product costs from one month to the next, keeping costs in line with projected manufacturing budgets.



A fraction-of-a-cent cost change can represent a large dollar change in overall profitability, when selling millions of units of product a month. Managers must carefully watch per unit costs on a daily basis through the production process, while at the same time dealing with materials and output in huge quantities.



Materials part way through a process (e.g. chemicals) might need to be given a value, process costing allows for this. By determining what cost the part processed material has incurred such as labor or overhead an "equivalent unit" relative to the value of a finished process can be calculated.

PROCESS COST PROCEDURES There are four basic steps in accounting for Process cost: 

Summarize the flow of physical units of output.



Compute output in terms of equivalent units.



Summarize total costs to account for and Compute equivalent unit costs.



Assign total costs to units completed and to units in ending work in process inventory.

The journal entries for process costing are the same as those for job-order costing with one exception. The entry to transfer cost from one work-in-process account to another is: Work-in-process inventory-second department Debit (Left)

Work-in-process-first department Credit (Right)

FEATURES Process costing can be defined as costing method which ascertains the cost of a product at the stage of manufacturing. In simple words under process costing the product of one process becomes the input of next process. Here is the list of the features of process costing – 1. Production under process costing is done through continuous flow of products which are identical or homogeneous. 2. Costs are computed periodically and also average cost can be easily computed under this method of costing. 3. Under this cost data is available process as well as departments thus enabling a better control over costs by the management. 4. In process costing sometimes by-products may emerge which have to be further processed in order to make them marketable and hence accordingly accounting adjustment needs to be made for such by- products. 5. There is always some work in progress under proves costing both at the beginning and at the end of the accounting period because it is a continuous process.

ADVANTAGES

Cost Containment

A business that implements a process costing system can better contain manufacturing expenses. Under this system, each department is assigned a cost center. A cost center is a number or code that identifies the purchases made by a single department. As financial expenditures, such as the acquisition of supplies and employee salaries, are made throughout the production process, each group creates a report highlighting purchases that have been made under its respective cost center. These reports are compiled and reviewed by senior management. This data allows them to identify inefficiencies within the supply chain. For example, a cost center report may indicate that 50 percent of production costs come from the procurement department. Management can then dictate steps that the procurement team must take to minimize costs.

Inventory Control

The Internal Revenue Service requires all businesses that maintain an inventory to meticulously track and report its supply. The IRS uses this information to accurately value the business so that tax estimates can be made. Tracking inventory can be a cumbersome task for very large corporations. This process can be simplified, however, through the implementation of a process costing system. Throughout the manufacturing process, each department documents any materials purchased. In addition, each good is valued and added to the cost center report. Management includes this information on the company’s income tax returns. Many organizations allow each of their departments to operate autonomously.

For example, the procurement department will have policies and procedure that are completely unique and independent of those of the supply chain group. This can be an incredibly ineffective way for a business to operate. Each department, in this scenario, may have its own jargon, making interdepartmental communication difficult. Furthermore, maintaining separate systems and policies means that additional money and time must be spent to cross-train employees. Through the implementation of a process costing system, a company will ensure that every department, regardless of function, operates in a uniform manner. This will allow members of the manufacturing supply chain to be in sync with one another.

LIMITATIONS:

1. Cost obtained at each process is only historical cost and are not very useful for effective control. 2. Process costing is based on average cost method, which is not that suitable for performance analysis, evaluation and managerial control. 3. Work-in-progress is generally done on estimated basis which leads to inaccuracy in total cost calculations. 4. The computation of average cost is more difficult in those cases where more than one type of products is manufactured and a division of the cost element is necessary. 5. Where different products arise in the same process and common costs are prorated to various costs units. Such individual products costs may be taken as only approximation

PROCESS COSTING Process costing is a method of costing used mainly in manufacturing where units are continuously mass-produced through one or more processes. Examples of this include the manufacture of erasers, chemicals or processed food. In process costing it is the process that is costed (unlike job costing where each job is costed separately).

The method used is to take the total cost of the process and average it over the units of production In a manufacturing process the number of units of output may not necessarily be the same as the number of units of inputs. There may be a loss.

Normal loss This is the term used to describe normal expected wastage under usual operating conditions. This may be due to reasons such as evaporation, testing or rejects.

Abnormal loss This is when a loss occurs over and above the normal expected loss. This may be due to reasons such as faulty machinery or errors by labourers.

Abnormal gain This occurs when the actual loss is lower than the normal loss. This could, for example, be due to greater efficiency from newly-purchased machinery.

Work in progress (WIP) This is the term used to describe units that are not yet complete at the end of the period. Opening WIP is the number of incomplete units at the start of a process and closing WIP is the number at the end of the process.

Scrap value Sometimes the outcome of a loss can be sold for a small value. For example, in the production of screws there may be a loss such as metal wastage. This may be sold to a scrap merchant for a fee.

COSTING PROCEDURE For each process an individual process account is prepared. Each process of production is treated as a distinct cost centre.

Items on the Debit side of Process A/c. Each process account is debited with – a) Cost of materials used in that process. b) Cost of labour incurred in that process. c) Direct expenses incurred in that process . d) Overheads charged to that process on some pre determined. e) Cost of ratification of normal defectives. f) Cost of abnormal gain (if any arises in that process)

Items on the Credit side: Each process account is credited with a) Scrap value of Normal Loss (if any) occurs in that process b) . b) Cost of Abnormal Loss (if any occurs in that process)

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. TABLE

Process Losses

: In many process, some loss is inevitable. Certain production techniques are of such a nature that some loss is inherent to the production. Wastages of material, evaporation of material is un avoidable in some process. But sometimes the Losses are also occurring due to negligence of Labourer, poor quality raw material, poor technology etc. These are normally called as avoidable losses. Basically process losses are classified into two categories (a) Normal Loss (b) Abnormal Loss

Normal Loss: Normal loss is an unavoidable loss which occurs due to the inherent nature of the materials and production process under normal conditions. It is normally estimated on the basis of past experience of the industry. It may be in the form of normal wastage, normal scrap, normal spoilage, and normal defectiveness . It may occur at any time of the process. No of units of normal loss: Input x Expected percentage of Normal Loss. The cost of normal loss is a process. If the normal loss units can be sold as a crap then the sale value is credited with process account. If some rectification is required before the sale of the normal loss, then debit that cost in the process account. After adjusting the normal loss the cost per unit is calculates with the help of the following FORMULA: Cost of good unit: Total cost increased – Sale Value of Scrap Input – Normal Loss units

Abnormal Loss: Any loss caused by unexpected abnormal conditions such as plant breakdown, substandard material, carelessness, accident etc. such losses are in excess of predetermined normal losses. This loss is basically avoidable. Thus abnormal losses arrive when actual losses are more than expected losses. The units of abnormal losses in calculated as under: Abnormal Losses = Actual Loss – Normal Loss The value of abnormal loss is done with the help of following formula

Value of Abnormal Loss: Total Cost increase – Scrap Value of normal Loss x Units of abnormal loss Input units – Normal Loss Units Abnormal Process loss should not be allowed to affect the cost of production as it is caused by abnormal (or) unexpected conditions. Such loss representing the cost of materials, labour and overhead charges called abnormal loss account. The sales value of the abnormal loss is credited to Abnormal Loss Account and the balance is written off to costing P & L A/c. TABLE

3. Abnormal Gains: The margin allowed for normal loss is an estimate (i.e. on the basis of expectation in process industries in normal conditions) and slight differences are bound to occur between the actual output of a process and that anticipates. This difference may be positive or negative. If it is negative it is called ad abnormal Loss and if it is positive it is Abnormal gain i.e. if the actual loss is less than the normal loss then it is called as abnormal gain. The value of the abnormal gain calculated in the similar manner of abnormal loss . The formula used for abnormal gain is: Abnormal Gain Total Cost incurred – Scrap Value of Normal Loss x Abnormal Gain Unites Input units – Normal Loss Units The sales values of abnormal gain units are transferred to Normal Loss Account since it arrive out of the savings of Normal Loss. The difference is transferred to Costing P & L A/c. as a Rea

TABLE

How to approach process accounting questions Step 1 Draw up a T account for the process account. (There may be more than one process, but start with the first one initially.) Fill in the information given in the question. Process account Units Opening WIP X Materials

Labour Overheads Abnormal gain

$ X X

X X X

Normal loss Transfer to Process 2 or Finished goods Abnormal loss Closing WIP

Units

$

X

X

X

X

X X

X X

X

Step 2 Calculate the normal loss in units and enter on to the Process account. (The value will be zero unless there is a scrap value – see Step 4).

Step 3 Calculate the abnormal loss or gain (there won’t be both). Enter the figure on to the Process account and open a T account for the abnormal loss or gain. Step 4 Calculate the scrap value (if any) and enter it on to the Process account. Open a T account for the scrap and debit it with the scrap value.

PROCESS OF MANUFACTURING SUGAR IN SUGAR INDUSTRY

. SAMPLING On arrival, a sample of the sugar beet is taken from the load and tested to measure the sugar content and to determine the amount of soil, tops or leaves present in the load .These analyses, combined with the weight of the vehicle entering and leaving the factory, enables the calculation of the quantity of sugar delivered and hence the payment due.

CLEANING Floats in water and in the cleaning stage of the process it is moved around in large quantities of water, allowing the Sugar beet to pass through machinery which 'catches' stones but allows the beet to float over the top. Weeds and other trash are also removed before the beet enters the factory, where it is sliced into thin slices called 'Cossettes'

SLICING The slicing machines work in a similar manner to a kitchen grater and the cossettes they produce have a 'V' cross section. This ensures the largest possible surface area is presented to maximise the sugar extraction stage.

DIFFUSION : Sugar is extracted from the beet by diffusion. This process takes place in a large vessel and in simple terms is akin to brewing tea The cossettes are mixed with hot water at around 70°C for a period of time and the sugar simply passes from the plant cells into the surrounding water by the diffusion process .The vegetable material left behind from this stage is mechanically pressed to extract as much remaining sugar and water as possible and, after the addition of molasses, is dried to produce animal feed products. Itis this drying process which gives rise to the familiar plume of steam rising from the factory. The liquid resulting from the diffusion process is dark in colour and is called raw juice.

PURIFICATION : This juice is passed through an important purification stage called carbon atation. This involves mixing the juice with milk of gas. During lime and adding carbon dioxide this process, the carbon dioxide and the milk of lime re-combine to produce calcium carbonate which precipitates out, taking most of the impurities from the juice with it

EVAPORATION The pale yellow juice which remains is called thin juice and while much purer it is still relatively low in sugar content. It passes to the next stage of the process - evaporation where the water is boiled off in a series of evaporator vessels to increase the solids The concentrated juice passes through filters, after which it is ready for the final stage of the process; or it can be stored and brought back into the factory during the summer to produce crystal sugar. Masse cuite - is spun in d to storage silos. Some sugar remains in the separated liquid so it is boiled again in a further set of vacuum pans to produce raw sugar. This process is repeated a third time resulting in final product sugar and molasses. Raw and final product sugars are re-dissolved into the thick juice. content of the juice from the previous 16 per cent in thin juice to 65 per cent in the thick juice. The concentrated juice passes through filters, after which it is ready for the final stage of the process; or it can be stored and brought back into the factory during the summer to produce crystal sugar.

CRYSTALLIZATION The crystallization process takes place in vacuum pans which boil the juice at lower temperatures under vacuum. When the juice reconcentration it is 'seeded' with tiny sugar crystals which provide the nucleus for larger crystals to form and grow .When the crystals reach the desired size the process is stopped and the resultant mixture of crystal sugar and syrup - known as centrifuges to separate the sugar from the 'mother liquor '. The sugar crystals are washed and after drying and cooling, are conveyedto storage silos. Some sugar remains in the separated liquid so it is boiledagain in a further set of vacuum pans to produce raw sugar. This processis repeated a third time resulting in final product sugar and molasses. Rawand final product sugars are re-dissolved into the thick juice.

The yield of gur from sugar cane depends mostly on the quality of the cane and the efficiency of the extraction of juice. The table below gives some extreme values.

High quality cane

Poor quality cane

Juice per 100kg of cane

50kg

40kg

% sugar in juice

22

17

Gur per 100kg of cane

10kg

7kg

High quality cane has a good juice content with high sugar levels (20%+). Poor quality cane or cane that has been harvested early may have similar juice content but the sugar levels will be reduced. The efficiency with which juice can be extracted from the cane is limited by the technology used. The simple three roller crushers used by most artisanal producers will never extract more than 50kg of juice from each 100kg of cane. Yields are also improved by careful control of the boiling process. Boiling should be completed as rapidly as possible and the conditions kept as clean as possible. Mass Balance Weight of gur = Weight of cane x (weight of juice/weight of cane) x (sugar in juice/sugar in gur)

For the technically minded, the weights of the gur, juice and cane can be related as follows:

10kg gur = 100kg cane x (50kg juice/100kg cane) x (19% sugar in juice/95% sugar in gur) [edit]Scale of production

Scale

Small

Cane processed/day

up to 50 tonnes

Medium 50 to 500 tonnes

Large

500 upwards

tonnes

Type of enterprise

Cottage and small village industry using traditional OP technology.

Small to medium enterprise using modified traditional OPS or small-scale VP technology.

Large industry using modern VP technology.

CONCLUSION Process costing may be used when identical items are mass produced and manufacturing may involve more than one process. In answering process costing questions it is important to understand key terms and establish whether WA or FIFO is being used as this has implications for the allocation of costs to outputs from the process. Having read this article and worked through the example, hopefully you should have a better understanding of how process costing works whether WA or FIFO is used.