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Costing Asignment
Costing Asignment
15
MMS (IISEMSTER)
COST &MANAGEMENT
ACCOUNTING
KCIMS
Difference Between Job and Process Costing
Job Costing Process Costing
Suitable in a Batch Suitable in a MASS
Environment
production production
Materials required for Materials needed are
job varies from order to same for every order
Materials
order leading to bulk
purchases opportunity
Skilled labor varies Unskilled workers who
according to changing carry out specific tasks
Direct Labor specification repeatedly which form
small part of the
production process.
Each production run is
Big quantities are
relatively short as the
Production runs produced leading to
production is carried out
longer production runs
for specific orders.
Varies from order to Remains the same for all
Cost Per unit
order orders
Time Period Job costing has no time Process costing has a time
frame. It ends after the frame of certain months
completion of a particular or years for which costs
job so that costs are are accumulated.
accumulated for each job.
Unit Cost Ascertainment Job costing obtains unit Process costing divides
cost by dividing the total total departmental process
cost of the job by the job costs by the departmental
order units process output to derive
the unit cost.
SPOILAGE :
Units that do not meet production standards and are either sold for their salvage
value or discarded are called spoiled units. When spoiled units are discovered, they are
immediately taken out of production, and no further work is performed on them. The
amount of spoilage for a period can be considered either normal or abnormal.
Normal: Spoilage that results from an efficient production process is called normal
spoilage. It is the unavoidable cost of producing good units.
Abnormal: Spoilage that exceeds what is considered normal for a particular production
process is called abnormal spoilage. It is controllable and results from inefficient
operations.
1. Method 1 - Theory of Neglect. Spoiled units are considered as not put into
production at all. Equivalent unit cost increases as costs are allocated over fewer
units. This method is used because of its simplicity, but it is not the preferred
method because it does not distinguish between normal and abnormal spoilage.
Abnormal Gain :
Abnormal gain reduces the normal loss quantity so it comes in the form of profit to
the industry. The value of an abnormal gain is assessed on the basis of production cost.
More output over the expected or normal output realized is called an abnormal gain.
Abnormal gain arises because of an abnormal effective in the use of raw material or
efficiency in performance so it is known as abnormal effective. Abnormal gain reduces
the normal loss quantity so it comes in the form of profit to the industry. The value of an
abnormal gain is assessed on the basis of production cost.
Abnormal loss
Abnormal loss is the loss caused by unexpected or abnormal conditions such as plant
break down, sub standard materials, carelessness, accidents etc or loss in excess of the
margin anticipated for normal process loss should be regarded as abnormal loss.
Abnormal loss = Actual loss – Normal loss Value of abnormal loss = Normal cost of
normal output /Normal output *units of abnormal loss.
If abnormal loss has got any scrap value, it should be credited to abnormal loss account
and the balance is ultimately written off to costing profit and loss account
The profit associated with the transfer of goods from one process to another process
is called inter-process profit. Normally, finished goods are transferred to the immediate
next process at the cost of production basis. In some process industries, finished goods
are transfer to the immediate next process by including a nominal amount of profit. The
profit so incorporated is called inter-process profit. The price fixed by adding the nominal
amount of profit for the transfer of finished goods to the next process is known as transfer
price. Adding profit on the goods transferred is termed as mark-up price.
The output of a particular process is transfer to the next process by adding a nominal amount of
profit for the following objectives:
Joint product:
By-Products:
The term "by product" is generally used to denote one or more products of
relatively small total value that are produced simultaneously with a product of
greater total value.
By product can be classified into the following two groups according to their marketable
condition at the split-off point:
Nature of By-Products:
By-products arising from the cleansing of the main product, such as gas and tar from
coke manufacture, generally have a residual value. In some cases, the by product is left
over scrap or waste, such as sawdust in lumber mills. In other cases, the by product may
not be the result of any manufacturing process but may arise from preparing raw
materials before they are used in the manufacture of the main product. The separation of
cotton seed from cotton, cores and seeds from apples, and shells from coca beans are
examples of this type of product.