Process Costing

Question 1

What is process costing?

Answer 1

Process costing is a method of costing used to calculate the unit cost of making a product which passes through several processes.

Question 2

Features of Process Costing

Answer 2

Units pass through a series of stages of production/processes where the output of one stage (process) becomes the input of the next stage (process)

The product is produced in one single process

There is simultaneous production, at one or more processes, of different products

Simultaneous production of identical products, products are not distinguishable from each other

Completed output is transferred to stock as a single commodity

Question 3

Industries that use Process Costing

Answer 3

Chemical works, oil refining, soap making and distillation processes such as whisky

Food processing, canning factories, biscuit works, meat products, milk and dairy

Textiles, weaving and spinning

Paper mills, paint, ink and varnishing

Question 4

Normal Loss

Answer 4

This is an expected loss which will be incurred during the production process. Some losses will be scrap whereas others will be waste.

Question 5

Scrap

Answer 5

This refers to discarded materials which have some recovery value however they can no longer be used for their original purpose.

Question 6

Spoilage

Answer 6

This is a form of scrap.
It is spoiled work which is partly complete and doesn’t reach the standard required.

Question 7

Waste

Answer 7

This is discarded substances which have no value eg if broken glass fell into a tank of soup then the soup would be considered unfit for human consumption and would have to be destroyed.

Question 8

Abnormal Waste

Answer 8

An Abnormal Loss is caused by unexpected or abnormal conditions, such as inferior materials, or carelessness by workers.

Question 9

Work-in-progress

Answer 9

This refers to partly finished materials/products.