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BBA Cost Accounting Topic Wise Short Notes of Process Costing

BBA Cost Accounting Topic Wise Short Notes of Process Costing : BBA Cost Accounting Topic Wise and Chapter Wise Short Notes Questions Answer Papers in English.

BBA Cost Accounting Topic Wise Short Notes of Process Costing : Page 1

BBA Cost Accounting Topic Wise Short Notes of Process Costing : Page 2

BBA Cost Accounting Topic Wise Short Notes of Process Costing
BBA Cost Accounting Topic Wise Short Notes of Process Costing

Bba Cost Accounting Topic Wise Short Notes of Process Costing, After Studying this Post You Are Able to Understand:-  Abnormal Gain, Abnormal Loss, Closing WIP, Equivalent Production, FIFO Method, Job Costing, Normal Loss, Opening WIP, Process Cost Centre, Process Costing, Process Gains, Process Losses, Weighted Averages method, Work in Process.

Learning objective

  • Meaning And Definition Of Process Costing
  • Distinctive Features Of Process Costing
  • Job Costing And Process Costing – Distinction
  • Normal And Abnormal Effectives
  • Valuation Of Work –In – Progress (Equivalent Production)


Bba Cost Accounting Topic Wise Short Notes of Process Costing Topic is Meaning and Definition of Process Costing

Meaning and Definition

CIMA defines process costing as follows: “the costing method application where goods or services result from a sequence of continuous or repetitive operations or processes, costs are averaged over the unit’s production during the period.”

Process costing is used where the production moves from one process or department to the next until its final completion and there is a continuous mass production of identical units through a series of processing, operations. It is applied for a various industries like chemicals and drugs, oil refining, food processing, paints and varnish, plastics, soaps, textiles, paper etc. process costing method may also be adopted in firms that produce a variety of products, provided that the overall production process can be broken down into sub – operations of a continuous repetitive nature like automobile, toy, plastics etc.

Bba Cost Accounting Short Notes of Features of Process Costing

Features of Process Costing

The distinctive features of process costing are as follows:

  • The process cost centres are clearly defined and all costs relating to each process cost centre are accumulated.
  • The cost and stock for each process cost centre are maintained accurately. The records give clear picture of the units introduced in the process or received from the preceding process cost centre and also units passed to the next process.
  • The total costs of each process are averaged over the total production of that process, including partly completed units.
  • The charging of the cost of the output of one process as the raw materials input cost of the following process.
  • Appropriate method is used in absorption of overheads to the process cost centres.
  • The process loss may arise due to wastage, spoilage, evaporation etc.
  • Since the production is continuous in nature, there will be closing work – in – progress which must be valued separately.
  • The output from the process may be a single product, but there may also be a by products and/ or joint products.

Bba Cost Accounting Short Notes of Distinguishing Features of JOb Costing and Process Costing

Job Costing and Process Costing

The distinguishing features of job costing and process costing are given below:

Bba Cost Accounting Topic Wise Short Notes of Process Costing Topic is Process Losses and Gains

Process Losses and Gains

It is usual that a certain amount of material introduced into the processes are lost, scrapped or wasted. There are many ways in which losses may arises e.g., evaporation, shrinkage, breakages, spoilage for various reasons. The process loss can be categorised into (1) Normal process loss and (2) abnormal process loss.

Bba Cost accounting Short Notes of Normal Loss

Normal Loss

The loss expected during the normal course of operations, for unavoidable reasons is called ‘normal loss’ and this is due to inherent result of the particular process and thus uncontrollable in the short – run management, overtime , are usually able to identify an average percentage of normal losses expected to arise from the production process. For example, 100 kgs. Introduced into the production process and on an average 95 kgs. Comes out after the process, we can say that the normal process loss is 5%. The normal losses are absorbed by the completed production. The cost of normal losses should be borne by the good production. If any value can be recouped from sale of scrap or wastage or spoilage etc., then this would be credited to the process account thus reducing the overall cost of the process.

Bba Cost accounting Short Notes of Abnormal Loss

Abnormal Loss

Abnormal losses are those losses above the level deemed to the normal loss rate for the process. The abnormal loss is the amount by which the actual loss exceeds the normal loss and it is expected to arise under inefficient operating conditions. For example, if 100 kgs. Of material introduced into the process and the expected normal loss is 5% and if the actual output from the process is 92 kgs. The abnormal loss is calculated as below:

The abnormal losses are not included in the process costs but are removed from the appropriate process account and reported separately as an abnormal loss. The abnormal loss is treated as a period cost and written off to the profit and loss account at the end of the period. Abnormal losses are credited out of the process account into an abnormal loss account at the full unit cost value. Abnormal losses will be costed on the same basis as good production and therefore, like good production, will carry a share of cost of normal losses.

Bba Cost accounting Short Notes of Abnormal Gain

Abnormal Gain

If the loss is less than the normal expected loss, the difference is considered as abnormal gain. Abnormal gain is accounted similar to that abnormal loss. Abnormal gains will be debited to  the process account and credited to abnormal gain account. The abnormal gain account is debited with the figure of reduced normal loss in quantity and value. At the end of the accounting year the balance in the abnormal gain account will be carried to profit and loss account.

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