Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
BCOM III
Cost Accounting
Process Costing

Industries which are engaged in the manufacture of products which involve continuous operation
or process are known as process industries. Process costing is also one important method of
costing. It refers to costing of operation(s) or process(es) involved in converting raw materials
into finished goods or products. Its main objective is to provide an average cost of product.
Characteristics of Process Costing
The main characteristics of process costing are:
(i) The products or goods are processed in one or more processes,
(ii) The products are distinguishable in processing stage,
(iii) The products or goods are standardized, and
(iv) When a product is produced through various processes, the output of each process in
transferred to the next process and that of last process is transferred to the finished goods or
finished stocks.
Features of Process Costing:
(a) The production is continuous
(b) The product is homogeneous
(c) The process is standardized
(d) Output of one process become raw material of another process
(e) The output of the last process is transferred to finished stock
(f) Costs are collected process-wise
(g) Both direct and indirect costs are accumulated in each process
(h) If there is a stock of semi-finished goods, it is expressed in terms of equivalent units
(i) The total cost of each process is divided by the normal output of that process to find out cost
per unit of that process.
Application of Process Costing
Process costing may be used in a wide number of industries. The following types of industries
may be used process costing:
(a) Production or manufacturing industries, such as cement, rubber, glass, textiles, paper, iron,
steel, aluminium, milk-dairy, biscuits, soap-making, flour milling industries, etc.
(b) Public utility services, such as water supply, generation of electricity, health services, etc.
(c) Mining industries, such as coal, steam, gas, oil, coking industries, etc.
(d) Chemical and distilleries industries, etc.

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Elements of Product Cost
(i) Direct Material
(ii) Indirect Material:
(iii) Direct Labour:
(iv) Indirect Labour:
(v) Direct or Chargeable Expenses
(vi) Indirect Expenses:
(vii) Overheads:

Items on the Debit side of Process A/c

In process Costing, individual process Accounts are prepared for each process. Each process
account is
debited with –
(a) Cost of materials used in that process.
(b) Cost of labour incurred in that process.
(c) Direct expenses incurred in that process.
(d) Overheads charged to that process on some pre determined.
(e) Cost of ratification of normal defectives.
(f) Cost of abnormal gain (if any arises in that process)

Items on the Credit side:

Each process account is credited with
(a) Scrap value of Normal Loss (if any) occurs in that process.
(b) Cost of Abnormal Loss (if any occurs in that process)

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Format of Abnormal Loss Account
Particulars Units ₹ Particulars Units ₹

To Process __ a/c Xxx Xxx By Cash (Sale of Xxx xxx

scrap)
By Costing P/l a/c Xxx Xxx
____ ____ _____ ____

Format of Abnormal Gain Account

Particulars Units ₹ Particulars Units ₹

To Normal Loss a/c Xxx Xxx By Process __ a/c Xxx xxx

By Costing P/L a/c Xxx Xxx

___ ____ _____ ____

Format of Normal Loss Account

Particulars Units ₹ Particulars Units ₹

To Process __ a/c Xxx Xxx By Abnormal gain Xxx xxx

a/c
By cash a/c (sale Xxx xxx
___ ____ of scrap) _____ ____

Value per unit for

Abnormal loss/gain/or = Total Cost-Realizable value of normal loss
finished stock Total units of RM – Normal loss (units)
Question 1. Prepare a Process Account from the following information.
Input of Raw material 1000 units @ ₹ 20 per Unit
Direct Material ₹4,200/-
Direct Wages ₹6,000/-
Production Overheads ₹ 6,000/-
Normal Loss 5%
Value of Scrap per unit ₹ 8/-
Question 2. Prepare a Process Account from the following information.
Input of Raw material 1000 units @ ₹ 10 per Unit
Direct Material ₹4,500/-
Direct Wages ₹6,500/-
Production Overheads ₹ 6,000/-
Normal Loss 5%
Actual output transferred to process II 900 units. Value of Scrap per unit ₹ 8/-

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Question 3. 600 kg of material was charged to Process a @ 4 per kg. The direct labour
accounted for ₹ 200 and the other departmental expenses were ₹ 760. The
normal loss is 10% of input and the net production was 500 kg. Assuming that
the process scrap itself is saleable ₹ 2 per kg, prepare Process A account,
normal loss and abnormal loss account.
Question 4. The output of Process X was 5,000 units. Normal loss allowed was 10% of
input. Abnormal loss was 400 units.
Material @ ₹ 5 per unit
Labour ₹ 8000
Overheads ₹ 6,700
Wastage realized ₹ 2.50 per unit.
Prepare Process X account and Abnormal loss account.
Question 5. In a factory the product passes through 2 processes, A and B. Loss of 5% is
allowed in Process A and 2% in Process B. Nothing is being realized by disposal
of wastage. During April ,2008, 10000 units of materials costing ₹ 6 each were
introduced to Process A. The other costs are:
Process A Process B
Material 6140
Labour 10000 6000
Overheads 6000 4600
The output was 9300 units from Process A. The output of Process B was 9200
units. 8000 units of finished products were sold.
Prepare process account, Abnormal gain or loss account.
Question 6. A product is completed in three consecutive processes. During a particular
month the input to Process 1 of the basic raw material was 5,000 units at ₹ 2 per
unit. Other information for the month was as follows:
Process 1 Process 2 Process 3

Output Units 4,700 4,300 4,050

Normal Loss as % of input 5% 10% 5%

Scrap value per unit ₹ 1 5 6

Direct wages ₹ 3,000 5,000 8,000

Direct expenses ₹ 9,750 9,910 15,560

Overhead ₹32,000 total, chargeable as a percentage of direct wages. There were

no opening or closing work-in-progress stocks. Compile three process a/c’s and
losses a/c.

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Question 7. A product passes through 3 processes- A, B, and C. 10,000 units at a cost of ₹
1.10 per unit were issued to Process A. The other direct expenses were as
follows:
Process 1 Process 2 Process 3

Sundry Materials ₹ 1,500 1,500 1,500

Direct wages ₹ 4,500 8,000 6,500

Direct expenses ₹ 1,000 1,000 1,503

a. The scrap of process A was 5% and in process b 4% on input.

b. The scrap of process A was sold at ₹ 0.25 per unit and that of Process B was
sold at ₹ 0.50 per unit and that of Process C at ₹ 1.00 per unit.
c. The overhead charges were 160% of direct labour.
d. The final products were sold at ₹ 10 per unit fetching a profit of 20% on sales.
Prepare three process accounts.

Cost Accounting
Practical Questions from past years
Topic- Process Costing

Q 1. 600 kg of material was charged to process A @ ₹ 4 per kg. The direct labour accounted
for ₹ 200 and the other departmental expenses were ₹ 760. The normal loss is 10% of input
and the net production was 500 kg. Assuming that the process scrap itself is saleable at ₹ 2
per kg., Prepare Process ‘A’ a/c, clearly showing the value of normal and abnormal loss. Also
prepare normal and abnormal loss a/c.
Q 2. The process of a manufacturing concern passes through two process A and B, and then
to finished stock. It is ascertained that in each process normal loss is 5% of the total weight
and 10% is scrap which from processes A and B realizes ₹ 80 per tonne and ₹ 200 per tonne
respectively. The following are the figures relating to both the processes.
Process A Process B
Materials in tonnes 1,000 70
Cost of materials in rupees per 125 200
tonne
Wages in rupees 28,000 10,000
Manufacturing expenses in rupees 8,000 5,250
Output in tonnes 830 780
Prepare Process Cost Accounts showing cost per tonne of each process. Also prepare Abnormal
Loss/Gain Account.
Q 3. The output of Process X was 5,000 units. Normal loss allowed was 10% of input.
Abnormal loss was 400 units. The following further information is obtained:
Material @ ₹ 5 per unit.
Labour ₹ 8,000
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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Overheads ₹ 6,750
Wastage realized ₹ 2.50 per unit
Prepare Process X account and Abnormal loss account.
Q 4. In a factory, the product passes through two processes, A and B. Loss of 5% is allowed
in Process A and 2% in Process B. Nothing is being realized by disposal of the wastage.
During April, 2008, 10,000 units of material costing ₹ 6 each were introduced in Process A.
the other costs were as follows:
Process A Process B
Materials - 6,140
Labour 10,000 6,000
Overheads 6,000 4,600
The output was 9,300 units from Process A. The output of Process B was 9,200 units.
8,000 units of the finished product were sold.
Prepare Process Accounts and Abnormal Gain/Loss Accounts.
Q 5. A product passes through 2 distinct processes A and B and then to finished stock. The
output of A passes direct to B and that of B passes to finished product. From the following
information you are required to prepare Process Accounts.

Process A Process B
Materials consumed ₹ 12,000 ₹ 6,000
Direct Labour ₹ 14,000 ₹ 8,000
Manufacturing expenses ₹ 4,000 ₹ 4,000
Inputs in process A (units) 10,000 units
Inputs in process A (value) ₹ 10,000
Outputs (units) 9,400 units 8,300 units
Normal wastage (% of input) 5% 10%
Value of normal wastage (per 100 units) ₹8 ₹ 10
No opening or closing stock is held in processes.

Q 6. A product passes through two processes A and B. The normal wastage for each
process is as follows:
Process A 3%
Process B 5%
Wastage of Process A was sold at 25 paisa per unit and that of process B at 50 paisa per
unit. 10,000 units were introduced in process A @ ₹ 1 per unit.
Other expenses were:
Process A Process B
Material ₹ 1,000 ₹ 1,500
Labour ₹ 5,000 ₹ 8,000
Direct expenses ₹ 1,050 ₹ 1,188
Actual Output (units) 9,500 units 9,100 units
Prepare:
a) Process Account
b) Normal Loss a/c
c) Abnormal Loss a/c
d) Abnormal Gain a/c

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Q 7. The product XYZ of a company passes through three distinct processes before
completion. From the past experiences it is ascertained that wastage is incurred in each
process as under:
Process A 2%
Process B 5%
Process C 10%
The wastage of Processes A and B is sold at ₹ 10 per unit and that of Process C at ₹ 80
per 100 units.
The following is the information regarding the production as on 31 st March 2011:
Process A Process B Process C
(₹) (₹) (₹)
Materials 12,000 8,000 4,000
Direct labour 16,000 12,000 6,000
Machine expenses 2,000 2,000 3,000
Other factory expenses 3,500 3,800 4,200
20,000 units have been issued to Process A at a cost of ₹ 20,000. The output of each
process has been as under:
Process A 19,500 units Process B 18,800 units Process C 16,000 units
There was no stock of work-in-progress in any process in the beginning and at the end of
31st March, 2011. Prepare Process Accounts.
Q 8. The output from Process A transferred to Process B was 2,500 units. Normal loss being
10% of input in Process A was 300 units. 200 units were reported to be as abnormal loss.
The other information is given below:
Material introduced @ ₹ 5 per unit, labour cost ₹ 4,000 and overheads ₹ 3,350 and normal
loss realized at ₹ 2.50 per unit.
You are required to prepare:
a) Process Account A
b) Abnormal Loss Account
Q 9. 600 units were introduced in Process X at ₹ 20 per unit. 500 units were completed and
transferred to process Y. The normal process loss was 20% of the input and the scrap is
sold at ₹ 3 per unit. The labour and overhead expenditure incurred in the process
amounted to ₹ 600. You are required to show the Process Account, Normal Loss Account
and Abnormal Gain Account.
Q 10. A product passes through two processes A and B. Normal Loss in process A is 10% of
the input and in process B it is 7.5% of the input. The scrap value in the process A is 5
paisa per unit and in process B it is 10 paisa per unit.
Other information is as follows:
Process A Process B
Materials 5,000 2,500
Wages 5,500 3,000
Other expenses 2,550 1,073
10,000 units were introduced into Process A at a cost of ₹ 5,000.
Q 11. From the following information relating to Process A, prepare Process A Account,
Abnormal Gain Account and Normal Loss Account.
Units introduced 840

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Notes by Dilpreet Kaur 9315976598; 9711899221

dks classes
Cost per unit ₹ 40
Material Added ₹ 5,924
Direct wages ₹ 8,000
Overheads ₹ 8,000
Actual output 750 units
Normal loss 15% of input
Values of scrap ₹ 10 per unit
Q 12. Product X is obtained after it passes through three distinct processes. You are required
to prepare Process Accounts, Normal Loss A/c, Abnormal Loss A/c and Abnormal Gain
(effective) a/c.
10,000 units @ ₹ 10 per unit were introduced in Process 1.
Total Process 1 Process 2 Process 3
Materials in ₹ 15,000 5,200 3,900 5,900
Wages in ₹ 18,000 4,000 6,000 8,000
Overheads in ₹ 18,000 4,000 6,000 8,000
Actual output (units) 9,500 8,400 7,500
Normal Loss 5% 10% 15%
Vale of scrap (% per unit) 4 8 10

Q 13. Product X is obtained after it passes through 3 distinct processes. You are required to
prepare Process Accounts, Normal Loss Account, Abnormal Loss/Gain A/c and Profit &
Loss A/c.
50,000 units @ ₹ 100 per unit were introduced in Process 1.
Process 1 Process 2 Process 3
Material (in ₹) 50,000 75,000 25,000
Labour (in ₹) 1,50,000 4,00,000 3,25,000
Overheads (in ₹) 30,000 90,750 1,36,000
Actual outputs (units) 46,500 27,000 10,500
Normal loss (calculated on input of each process) 5% 15% 20%
Value of scrap (₹ per unit) 10 25 50
Selling price per unit of output (in ₹) 600 825 1,250
Management expenses during the year were ₹ 4,00,000 and selling expenses were ₹
2,50,000. These are not allocable to the process. Two-third of the output of the Process A
and one-half of the output of Process B was passed on to the next Process and the
balance was sold. The entire output of Process C was sold.
Q 14. A product passes through 3 distinct processes A, B and C. The normal loss of units in
each process is 5%, 10% and 15% of input and the same is sold at ₹ 2, ₹ 4 and ₹ 5 per
unit respectively. Expenses for the month were as follows:
A B C
Sundry materials ₹ 5,200 ₹ 3,960 ₹ 5,924
Wages ₹ 4,000 ₹ 6,000 ₹ 8,000
Actual output in units 1,900 1,680 1,500
2,000 units @ ₹3 per unit were put into process ‘A’. The total overheads are ₹ 18,000
which are to be recovered at 100% of wages. Prepare necessary process accounts.

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