Process Costing Flashcards
Describe the accounting underlying process costing
The aim of process coting is to calculate the product cost of identical units. The CPU is the average cost of all the units produced.
Therefore, the cost of each stage of production (process costing) is calculated until the cost of finished goods is determined.
Distinguish between normal and abnormal losses, highlighting the accounting treatment.
Normal Losses - these are expected losses. Thus since the firm knows that these expenses are going to occur and are unavoidable, they are absorbed and paid by the customer.
Abnormal losses - these expenses can not be predicted by the firm. thus they are entered in the P/L and are paid by the firm itself.
Provide TWO examples of industries which could use process costing.
- Food Processing
- Brewing
- Oil-refining
- Flour milling
- Milk production.
How is the scrap value of process losses accounted for?
The scrap value of an abnormal loss is credited to the process account. Meanwhile, the cash account is debited if any abnormal loss is sold as scrap.
What is process costing?
Process costing is used by organisations which produce large amount of identical units in a similar manner, usually by mass production methods. A number of production processes are involved, and output flows from one process to another.
