Академический Документы
Профессиональный Документы
Культура Документы
SUBMITTED BY
MISS. MEERA HARESH BHANUSHALI
ROLL NO: 6202
M.Com. SEM- I
(ADVANCE ACCOUNTANCY)
ACADEMIC YEAR: 2015-16
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
____________________
___________________
Project Guide
External guide
_____________________
___________________
Co-coordinator
Date:
Principal
ACKNOWLEDGEMENT
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.
PLACE:
DATE:
Signature
INTRODUCTION:
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.
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
costs to units of finished output and the occurrence of losses during the process (spoilt or lost
production).
- 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
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
operations, and unit costsare ascertained by dividing process costs by the quantity of output
units produced This is known as process costing.
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.
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.
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
Companies need to allocate total product costs to units of product for the
following reasons:
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.
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.
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)
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
Inventory Control
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.
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.
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
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
. 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 70C 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.
50kg
40kg
% sugar in juice
22
17
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
Large
500
upwards
tonnes
Type of enterprise
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.