Process CostingProcess Costing

Presented by:KHURRAM SHAHZAD

Roll No. AD-523011

• There are two main types of cost accounting systems. Companies select a method that best matches the flow of work in their business. These methods are used to allocate all production costs: labor, materials and overhead.

• Job order costing - work is broken into jobs; each job is tracked separately.

• Process costing - a large quantity of identical or similar products are mass produced.

Process Costing

• Process costing is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture.

• It is a method of allocating manufacturing cost to products to determine an average cost per unit.

• It traces and accumulates direct costs, and allocates indirect costs, through a manufacturing process. Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to be allocated to individual units of product. Alternatively, Job costing can be used to track the flow of costs.

Examples of industries using Process Costing include:

• Bottling• Pharmaceuticals• Cement • Paint• Coal• Distilleries Electricity• Ice• Soap• Sugar

• Chemicals• Cooking oil• Electric appliances• Flour• Natural gas• Petroleum Products• Rubber• Steel• Textile.

DirectDirect materialsmaterials

Work in Process Work in Process AccountAccount

Work in Process Work in Process AccountAccount

DEPT. A DEPT. B

Factory Factory OverheadOverhead

Direct Direct LaborLabor

to Finished to Finished GoodsGoods

to Finished to Finished GoodsGoods

Process Costing SystemProcess Costing SystemProcess Costing SystemProcess Costing System

Factory Factory OverheadOverhead

Direct Direct LaborLabor

Physical Flows for a Process ManufacturerPhysical Flows for a Process ManufacturerPhysical Flows for a Process ManufacturerPhysical Flows for a Process Manufacturer

Scrap Metal

Materials

MeltingMeltingDepartmentDepartment

CastingCastingDepartmentDepartment

Molten metal

transferred from

Melting

To finished goods

CastingCastingDepartmentDepartment

MeltingMeltingDepartmentDepartment

Physical Flows for a Process ManufacturerPhysical Flows for a Process ManufacturerPhysical Flows for a Process ManufacturerPhysical Flows for a Process Manufacturer

UNITE NO. 3SARGODHA ROAD, FAISALABAD

AMTEX HISTORY

• Amtex journey originally began three decades ago as a weaving unit, entered in international market in 1993 and experienced exponential growth to date by touching a milestone of total annual turn over of $ 200 Million. A team of Over 15000 professionals is ready to serve the clients in the best possible manner. Such mega growth is indicative of sheer dedication showed by the management of the mills the clients as well as to their employees.

CORPORATE VISION & MISSION

• Our aim is to become the buyer's first choice all around the world.

• To achieve this target we make sure that we stay true to the highest standards of excellence and customer's satisfaction.

• Our vision is to provide our customers with just the one venue to supply all their requirements.

DIVISIONS

• Spinning

• Weaving

• Processing

• Design and Creation

• Embroidery

• Stitching

INTRODUCTION TO STUDY• Cost per unit produced is the average cost,

which is calculated by dividing the total process cost by number of units produced. The sequence of operations or process is specific and pre determined. Some loss of material in process (due to chemical action evaporation etc) is unavoidable. Processing of raw material may give rise to the production of several products these several products produced from the same raw material may be termed as joint products or by-products.

OBJECTIVE OF STUDY

• 1. To understand the process of manufacture • 2. To study of input output of each process. • 3. To find out cost of each process. • 4. To find out normal and abnormal wastage.

TOWEL MANUFACTURING PROCESSES

• 1) Doubling process • 2) Reeling process • 3) Dying process• 4) Winding process• 5) Warping process• 6) Weaving process • 7) Stitching process • 8) Inspection and packing process

PROCESSES AND COST CALCULATIONS

Process 1Doubling Process

• Firstly the yarn is purchased from the market after then it is proceed to processes into doubling process, which is required for actual towel production. In actual production, single yarn is not so important that’s why it is proceeds into single yarn by doubling process.

• Started in Production: 1000 units @ 10 = Rs. 10,000

• Cost Added by the Department• Material = Rs. 500• Labour = Rs. 200• FOH = Rs. 300• Total cost = Rs. 11,000

• Unit completed and transferred to next department = 900 units

• Normal Loss 10% = 100 units

Process – 2 Reeling Process

After doubling process, reeling process is proceeds. In this process, yarn is wound on wrapper bobbins then transfer into reeling process.

• Cost calculation:• Started in Production with = 900 @ 12.22 = Rs. 10,980• Cost Added by the Department• Material = Rs. 1500• Labour = Rs. 200• FOH = Rs. 300

• Total cost = Rs. 12,980

• Unit completed and transferred to next department = 800 units

• Normal Loss 10% = 90 units

• Abnormal loss = 10 units

Process-3Dying process

• After reeling process, dying proceeds. In this process, yarn is dipped completely in the oil. Then it is bleached this bleached yarn is dries in sunlight and then bleached yarn put into the color and again dried in the sunlight.

• Cost is being calculated as in preceding process

Process-4Winding process

• The yarn is wound on wrapper bobbin and cone respectively to provide a wrap for weaving the towel.

• Cost is being calculated as in preceding process

Process-5Warping process

• From the wrapper, bobbins, a wrapper beam is prepared which is a input for the looms. Sizing and starching of the wrap, threads are not required.

• Cost is being calculated as in preceding process

Process-6Weaving process

• The wrap beam is ready to weave towel on the loom. The actual insertion of threads is controlled by the Jacquard cards, which are set up as an attachment above each loom.

• Cost is being calculated as in preceding process

Process-7Stitching process

• After completion of weaving process. The output is sent for stitching process. In this process, towels pieces are stitched one by one.

Process-8Inspection and packing process

After manufacturing of the towels, all the towels are inspected for the quality and after inspection, towels are sent for packing.

On completion of all processes the following units are produced and the cost calculation is a under:-

Unit started in Production = 500 @ 50 = Rs. 25,000

Cost Added by the Department• Material = Rs. 2000• Labour = Rs. 200• FOH = Rs. 300

• Total cost = Rs. 28,000

Unit completed and ready for sale = 500 units @ 56