process costing

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UNIVERSITY OF MUMBAI RAYAT SHIKSHAN SANSTHA’S

KARMAVEER BHAURAO PATIL COLLEGE VASHI, NAVI MUMBAI

COLLEGE CODE – 33 PROJECT REPORT ON ‘PROCESS COSTING”

SUBMITTED BY GAUTAMI .J.KOLI

PROJECT GUIDE DR. MEGHA LOHIA IN PARTIAL FULFILLMENT FOR THE COURSE OF MASTER OF COMMERCE M.COM.PART – I (SEMESTER I) ACADEMIC YEAR 2014-15

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Contents ACKNOWLEGEMENT.................................................................................................... 3 DECLARATION............................................................................................................. 4 CERTIFICATE............................................................................................................... 5 INTRODUCTION........................................................................................................... 7 MEANING OF PROCESS COSTING................................................................................8 FEATURES OF PROCESS COSTING...............................................................................9 REASONS FOR USE................................................................................................... 10 IMPORTANCE OF PROCESS COSTING........................................................................11 WHEN PROCESS COSTING IS APPLIED?.....................................................................12 JOB COSTING V/S PROCESS COSTING.......................................................................13 BIBLIOGRAPHY.......................................................................................................... 15

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ACKNOWLEGEMENT On the occasion of completion and submission of project we would like to express our deep sense of gratitude to DR. MEGHA LOHIA for providing us platform of management studies. We thank to our chairman and faculty members for their moral support during the project.

We are glad for providing us an opportunity to carryout project on European Union and also their help and tips whenever needed. Without his co-operation it was impossible to reach up this stage.

At last, I sincere regards to my parents and friends who have directly or indirectly helped me in the project.

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DECLARATION I, GAUTAMI J KOLI student of KARMAVEER BHAURAO PATIL COLLEGE, studying in M.Com.Part-I. (Semester I) hereby declare that I have completed this project report on “STRATEGIC MANAGEMENT PROCESS RISKS AND BENEFITS” And has not been submitted to any other University or Institute for the award of any degree, diploma etc. The information is submitted to me is true and original to the best of my knowledge.

Date ……………………….

………………………..………… (Name & Sign of Student)

Place – Vashi, Navi Mumbai.

5 RAYAT SHIKSHAN SANSTHA’S

KARMAVEER BHAURAO PATIL COLLEGE VASHI, NAVI MUMBAI 400 703.

CERTIFICATE This is to certify that GAUTAMI KOLI, student of M.Com.Part-I Semester

I

has

completed

his

project

on

“STRATEGIC

MANAGEMENT PROCESS RISKS AND BENEFITS” and has submitted a satisfactory report under the guidance of DR. MEGHA LOHIA In the partial fulfillment of M.Com. Course of University of Mumbai in the academic year 2014-15.

……………………. Project guide

…..……………….. Coordinator

…………..………………..

…………………… Principal

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University Examiner

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INTRODUCTION 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.

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MEANING OF PROCESS COSTING DEFINITION: According to ICMA London, “it is that form of operation costing when standardized goods are produced.” The method of cost accounting used by processing firms is called process costing system. For each process function, product costs lay direct materials, direct labor and factory overheads are accumulated under process costing method. For instance, the processing of herbal includes herbs processing, herbs mixing, herbs medicine making and

packing.

Ascertainment of process costs facilitates to control costs, evaluate performance and efficiency of each process. The cost of production ascertained is compared with the prevailing market price of similar products to assess performance. A constant reference of costs by elements is needed to assess efficiency and performance of each process. The purpose of assessing efficiency and performance of each process can be achieved if a separate process account is maintained for each process. The process account so maintained provides necessary cost information essential for controlling the costs and evaluating

performance

and

efficiency

of

each

process.

Process accounting helps a manufacturing firm to ascertain the cost of production and the cost per unit of output at each stage of process. The output of one process forms an input to the next process. Transferring the output to the next process continues until the final process produces finished products.

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FEATURES OF PROCESS COSTING Process costing method is applicable where the output results from a sequence of continuous or repetitive operations or processes are identical and cannot be segregated. Process costing enables the ascertainment of cost of the product of each process or stage of manufacture. The following features may be indentified with process costing:  

The output consists of products which are homogenous. Production is carried on in different stages (each of which is called the process )



having continuous flow. Production takes place continuously except its case where the plant and machinery are shut down for maintenance etc. output is uniform and all units are



identical during each process. The input will pass through two or more process before it takes the shape of the output. The output of each process becomes the input for the next process until



the final product is obtained, with the last process giving the final product. The output of a process (except the last) may also be saleable in which case the



process may generate some profit. The input of a process (except the first) may be capable of being acquired from



the outside sources. The output of a process is transferred to the next process generally at cost to the process. It may also be transferred at market price to enable checking the

 

efficiency of operations in comparisons to the market conditions. Normal and abnormal losses may arise in the process.

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REASONS FOR USE 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.

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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.

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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. Process costing can be followed favorably:    

Production of a single product. Production of a single product of a standard design in the same plant. Production of several products of a standard design in the same product. Division of a factory into separate into separate operations or processes.

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JOB COSTING V/S PROCESS COSTING

Job Costing basically refers to the costs that are encountered in the businesses related to manufacturing goods. Job Costing ledgers, wherein such costs are recorded, form an integral part of the final account statement of the manufacturers. This type of costing involves recording the costs as per the specific jobs rather than a particular process. However, Process Costing refers to the methodology involved in calculating the costs that are incurred while performing a particular task or undertaking a specific process. This might involve the costs that are either incurred directly or indirectly.

Job Costing involves the costs of every individual unit of production. However, Process Costing involves the costs that are averaged for each production unit. As per the definition, Process Costing is a method that is applied to the manufacture business that is held together by various continuous or repetitive processes. Process Costing works efficiently for the industries that are known to produce a single type of product. Both of these terms signify the costs related to labor, material and overhead costs.

Process Costing helps to keep a tight reign over the monthly expenditures in a manufacturing business. As an example, Job Costing involves the costs that form salaries of labors working in a particular process whereas Process Costing involves the costs of the processed or manufactured goods undertaken by different departments. One of the major differences between Job Costing and Process Costing is that the Job Costing can be carried out while a particular job is going on. However, Process Costing can be achieved only when all the processes are completed. Moreover, when it comes to documentation, in case of Job Costing, the job cost sheet is important whereas in

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Process Costing a document having deposition and accumulation of various costs is important. In summary, there are various differences between Job Costing and Process Costing methods. Some of these are listed below: 1. Job Costing signifies the costs encountered for each and every job whereas Process Costing signifies the costs encountered for different departments. 2. In case of Job Costing, a final value of the costs can be calculated beforehand whereas in Process Costing, the final value of the costs is calculated only at the end of the complete process. 3. The important documents needed to carry out Job Costing are much different from those needed for Process Costing. 4. Job Costing is typically used by industries that manufacture customized and heterogenous products whereas Process Costing method is used by the industries that are involved in mass production of homogenous products.

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BIBLIOGRAPHY Introduction: https://www.google.co.in/#q=process+costing Meaning : http://accountlearning.blogspot.in/2010/10/concept-andmeaning-of-process-costing.html difference between job csoting and process costing : http://www.differencebetween.net/business/differencebetween-job-costing-and-process-costing/

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