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Process costing is probably the most widely used method of cost ascertainment. It is used in mass production industries producing standard product like steel, sugar, chemicals etc. In all such industries goods produced are identical and all factory process re standardized goods are produced without waiting for any instructions or orders from customers and are put into warehouse for sale. Raw materials move down the production line through a number of process in a particular sequence and costs are complied for each process or department by a preparing a separate account for each process the products are standardized and homogeneous. 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.

                                

 

            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.

 

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

 

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

 

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.

 

The wrap beam is ready to weave Turkish 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.

 

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

 

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

 

 

 

The company is having 5 units so I studied on only 1 unit that contains 4 looms. My project is restricted only for 4 looms that is 1 unit. 

 

 

 

 

 

 

 

Indian textile market fastest growing in 2004. Indian textile players make a beeling for the US and the EU markets it is back home that the textile market is really growing.

India is emerging as the fastest growing textile market, while several of the western markets, including the UK, France, Italy and Germany seen to have reached saturation, according to KSA Techonopak data. India, along with China and Pakistan, is expected to offer the maximum opportunity to its textile and clothing producers from its own internal market over the next 10- 15 years.

The Indian textile and clothing market, which was worth around $ 26 billion in absolute terms last year, is expected to grow into a $55 billion market by 2016. Also, with India and China home into the highest population of young people in the world, the textile demand is these countries is expected to gain in strength over the years. In fact, the Indian market could be bigger than the projected size of the Japanese, German, French and the Italian markets by 2016. According to KSA Techonopak data.

 

The Indian textile occupies a unique position in the Indian Economy in terms of its contribution in industrial production, employment and experts.

In 1820 the first textile factory was set up at Solapur. Actual commercial beginning of textile industry commenced in 1854. Many mills were setup in Maharashtra, as it appeared to be a profitable industry. Industries were set up in Mumbai and Ahmedabad also. In this way also the industries were centralized in Mumbai and Ahmedabad. In those days after some period i.e. 1911, number of industries were set up and developed in Mumbai, Ahmedabad, Bhiwandi, Malegoan, and Ichalkarangi and also in Solapur.

   

 

 

 

Cost Accounting is traceable to the earlier part of 17^th century. The cost accounting concepts advanced with the beginning of the First World War. The ‘cost plus’ concept was introduced during the wartime in order to avoid delay in executing urgent suppliers. The contracts were entered on the basis that the supplier would be reimbursed the cost ‘plus’ a fixed percentage to cover overheads. Cost accounting has primarily developed to meet the needs to management P & L Account and Balance sheet are presented to management by the financial accountants, but modern management needs much more detailed information than supplied by these financial statement cost accounting provides a detailed cost information to various levels of management. It acts as a tool of management for making optimum use of scare resources and ultimately ass to the profitability of business.

Cost Accounting is the classifying, recording and appropriate allocation of expenditure for the termination of the cost of products or services and for the presentation of suitably arranged data for purpose of control and guidance of management. It includes the ascertainment of the cost of every order, job, contract process service or unit as may be appropriate. It deals with the cost of production, selling and distribution.

 

‘Cost Accounting is the application of costing and cost accounting principles, methods and technique to the science, art and practice of cost control and ascertainment of profitability. It also includes the presentation of information derived there from for the purpose of managerial decision making.’

 

“Cost Accounting is the process for costs which begins with recording of income and expenditure or the bases on which they are calculated and ends with the presentation of statistical data. Cost accounting is thus the formal mechanism by means of which costs of products or services are ascertained and controlled.”

 

Costing system in which the cost of product or service is obtained by assigning costs to a distinct unit, batch or lot of a product or services.

Here Horner does make a distinction for process costing. Here the definitions are almost identical the CIMA terminology first sets the scene.

1.      The costing method applicable where goods or services results from a sequence of continuous or repetitive operations or processes. The definition then becomes.

2.      Costing system in which the cost of product or services is obtained by using broad average to assign costs to masses of similar units.

 

Cost accounting is a tool of management that provides detailed records and reports on the costs and expenses associated with the operations mainly for internal control and decision-making. Cost accounting offers following advantages.

A system of cost accounting points out profitable and unprofitable activities so that management can take steps to reduce wastage and inefficiencies in any form such as idle time, wastages of materials etc.

Cost accounting helps in controlling cost with the help of cost control techniques such as standard costing, budgetary control, marginal costing etc. it also helps in cost reduction. 

Cost accounting supplies suitable cost data and other related information for managerial decision making on situations like introduction of new product lines, replacement of old machinery with an automatic plant, make or buy etc.

Cost is one of the most important factors to be considered while fixing prices. A system of cost accounting guides the management in the fixation of selling prices.

 

Cost accounting system includes many techniques of inventory control such as ABC analysis perpetual inventory control system, EOQ models etc. these techniques are found to be more useful as internal control techniques for cost control & reduction.

Cost accounting data enable the management in formulation of production and pricing policies. It helps in providing data for cost estimations and quotation of tender prices.

Cost accounting provides a reliable check on the accuracy of financial accounts with the help of reconciliation between the two at the end of the accounting period.

The establishment of an effective costing system prevents manipulation and fraud and helps in providing correct and reliable cost data to the management as well as to other interested parties such as the shareholders, the consumers and the govt. 

9) It provides information up on which estimates and tender are based. Incase of the contracts or jobs, quotations cannot be given unless the cost of completing the contracts can be found out.

10) It enables a periodical determination of profits or losses without resort to stocktaking.

11) It furnishes reliable data for comparing costs in different periods for different volume of output in different departments & process & in different establishment with the most efficient operating conditions.

12) It enables the creditors & investors to judge the financial strength & credit- worthiness of the business. A sound business concern with a good system of costing can attract more investors that a similar concern without an adequate system of costing.

 

The method to be used for the ascertainment of cost of production differs from industry to industry. It primarily depends on the manufacturing process and also on the methods of measuring the departmental and finished products. Basically, there are two methods of costing.

1)      Job costing

2)      Process costing

Job costing is suitable for industries manufacturing different products or executing different jobs for different customers according to different specifications. Process costing is suitable for industries where production is continuous and units are identical. All other method of costing are improvements extensions or combinations of the above two basic methods.

Under this method, costs are collected and accumulated for each job, work order or project separately. Each job can be separately identified, so it becomes essential to analysis the cost according to each job. A job card is prepared for each job for cost accumulation. This method is applicable to printer’s machine toll manufactures, foundries and general engineering workshops.

When the job is big and spread over long period of time, the method of contract costing is used. A separate account is kept for each individual contract. Builders, civil engineering contractors, constructional and mechanical engineering firms etc, use this method.

This is an extension of job costing. A batch may represent a number of small orders through the factory in batch. Each batch is treated as a unit of cost and separately costed. The cost per unit is determined by dividing the cost of the batch by the numbers of units produced in a batch. This method is mainly applied in biscuits manufactures, spare parts, and components manufactures.

This is suitable for industries where production is continuous, manufacturing is carried on by distinct and well defined process, the finished product of one process become the raw material of the subsequent process, different products with or without by products are produced during a particular process are exactly identical. As finished products are obtained at the end of each process but also cost per unit at each process.

 

 

This is also known as single or output costing. This is suitable for industries where manufacture is continuous and units are identical. This method is applied in industries like mines, quarries, oil, drilling. In all these industries there is natural or standard unit of cost. The object of this method is to ascertain the cost per unit of output and the cost of each item of such cost. Here cost accounts take the form of cost sheets prepared for a definite period.

This is suitable for industries, which render services as distinct from those, which manufacture goods. This is applied in transport undertakings power supply companies municipal services, hotels etc. This method is used to ascertain the cost of services rendered.

This method of manufacture consists of a number of distinct operations. It refers to conversion cost i.e. cost of converting the raw materials into finished goods. This method takes into consideration the rejections in each operation for calculating input units and costs.

It represents the application of more than one method of costing in respect of the same product. This is suitable for industries where a number of component parts are separately produced and subsequently assembled into a final product. This method is used in factories manufacturing cycles, automobiles, engines, radios, typewriters, aeroplane and other complex product.

 

Process costing is used by companies which mass-produce identical or similar products. Since very unit is essentially the same, each unit receives the same manufacturing input as every other unit. Refineries, paper mills and food processing companies, textiles are examples of business, which use process costing.

·        A system that accumulates all costs for the production of similar items in a given batch, lot or time frame and creates an average unit cost based on the volume or units produced. Cost are tracked only for the entire batch, and not pegged to individual units.

·        Process costing is a method of allocating manufacturing cost to products to determine an average cost per unit.

·         Process is a continuous operating costing method that is applied within manufacturing, where there is a continuous flow of homogeneous product resulting from a sequence of repetitive operations.

In a business where a product passes through different stages of production, each distinct and well-defined process costing is employed. A separate account of each process is opened and all expenditure is charged there on. Thus, the cost of product at each stage of manufacture is found out. The partially work product of a process is transferred to next process account. Thus, in process costing the finished products of a preceding process become the raw material of next process.

The establishment of product unit costs in a process costing system may, in many practical situations, be calculated very straight forwardly by dividing the total costs (direct material, direct labour, and overheads) for an accounting period by the total number of units of product completed in that period.

However the establishment of product unit costs may also have to deal with the following.

·        A desire to establish weather any losses of material / product occurring in the process are normal or abnormal and to reflect these appropriately in product cost.

·        The incidence of partly completed production at the end of an accounting period, and thus the need to establish a valuation for the incomplete units that reflects the degree of completion.

Since unit cost under process costing are made like average. The process costing system requires less booking than does a job order costing system. A lot of companies prefer to use a process costing system for this reason.

1)      Production quantity is uniform.

2)      One order does not affect the production process.

3)      Customer orders are filled from the manufactures stock.

4)      Continuous mass production through an assembly line approach.

5)      A standardization of the process and product exists.

6)      Cost control on a departmental basis rather than on customer or product basis is desired.

7)      Continuity of demand for the output.

8)      Quality standards can be implemented on a departmental basis for e.g. online inspection as processing proceeds.

Process costing is a method of costing used to ascertain the cost of the product at each process, operations or stage of manufactures, where process are carried on having one or more of the following features.

1)      Production is continuous except where plant and machinery is shut down for repairs etc.

2)      The finished product of one process becomes the raw material of the next process or operation and so on until the final product is obtained.

3)      Different products with or without by products are simultaneously produced at one or more stages or processes of manufacture “how to value the by products and apportion the joint cost before point of separation” is to be studied in this method of costing. 

4)      Output is uniform and all units are exactly identical during one or more processes so the cost per unit of production can be ascertained only by averaging the expenditure incurred during a particular period.

5)      An avoidable and unavoidable loss usually arises at different stages of manufacture for various reasons how to deal with the normal and abnormal losses is to be studied in this method.

6)      In certain industries, by products may require further process costing before they can be sold.

7)      A main product of one firm may be a by-product of another firm and in certain circumstances; it may be available in the market at prices, which are lower than the cost to the first mentioned firm. It is essential, therefore, that this cost be known so that advantages can be taken of taken market conditions.

8)      In order to obtain accurate average costs, it is necessary to measure the production at various stages of manufacture.

9)      Sometimes goods are transferred from one process to another process not at cost price but at transfer price to compare with the market price and to have a check on the inefficiency losses occurring in a particular process.

10) All the input units may not be converted into finished goods some may be in progress. How to calculate effective units is to be seen in this.

 

The following are the main advantages of process costing:

1) It is possible to determine process costs periodically at short intervals. Unit cost can be computed weekly or even daily if overhead rates are used on predetermined basis.

2) It is simple and less expensive to find out the process cost.

3) It is possible to have managerial control by evaluating the performance of each process.

4) It is easy to allocate the expenses to processes in order to have accurate costs.

5) It is easy to quote the prices with standardization of processes. Standard costing can be established easily in process type of manufacture.

 

The following are the main disadvantages of process costing:

1) Costs obtained at the end of the accounting period are only of historical value and are not very useful for effective control.

2) Work-In -Progress is required to be ascertained at the end of an accounting period for calculating the cost of continuous process. Valuation of work in progress is generally done one established basis, which introduces further inaccuracies in total cost.

3) Where different products arise in the same process and common costs are prorated to various cost units. Such individual products costs may be taken as only approximation and hence not reliable but may be taken as the best.

4) There is a wide scope of errors while calculating average costs. An error in one average cost will be carried through all processes to the valuation of work in process and finished goods.

5) The computation of average cost is more difficult in those cases where more than one type of products are manufactured and a division of the cost elements is necessary.

 

A process may consist of a separate operation. A foreman or supervisor is appointed for each department. He is responsible for the efficient functioning of his department.

In process costing, a separate account is kept for each process. The account is debited with the value of material, labour and overheads relating to the process. The value of by products and scrap, if any, is credited to this account. The balance of this account, representing the cost of partially worked out product, is passed on to the next process and so on until the product is completed. Thus the finished product of one process becomes the raw material of the next process. In some industries, depending upon the plant arrangement, the partially worked out product of a process may be transferred to a process stock account from which it may be issued to the next process as and when required.

            

In process costing, the following four main aspects are to be studied in detail-

1)      Process losses

2)      Inter process profit

3)      Joint and by products

4)      Effective and equivalent production

 

The nature of many process operation is such that the output volume is frequently less than the input volume because process operations are repetitive the level of ‘losses’ of material / product that could reasonably be expected under efficient operating conditions may be established. This is referred to as a ‘normal loss’. It is the loss, which is unavoidable on account of inherent nature of material. Such losses can be estimated in advance on the basis of past experience or chemical data normal process loss may include scrap and / or waste. Where as waste has no value scrap has some value, which is recoverable without further processing.

The normal process loss is recorded only in terms of quantity and cost per unit of usable production is increased accordingly where scrap process some value as a waste product or as raw material for another process. The value there of is credited to the process account. This reduces the cost of normal process loss shared by unable units. 

This type of wastage is unavoidable arising due to nature of material such as evaporation, shrinkage etc.  

 

If the actual good output achieved is not as expected, then abnormal gains and losses have occurred i.e. good output will either be more (abnormal gain) or loss (abnormal loss) than expected.

 

A loss caused by unexpected or abnormal conditions such as sub-standard materials, carelessness, accident etc. or loss in excess of the margin anticipated for normal process loss should be regarded as abnormal process loss. Valuation of abnormal loss should be done with the help of following formula.

 

       

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, lobour and overhead incurred on the wastage should be transferred to an abnormal loss account. If this abnormal loss has got any scrap value, it should be credited to abnormal loss account and the balance is ultimately written off to costing Profit & Loss Account. It arise due to avoidable causes such as theft, carelessness etc. such wastage is not to be added in cost of production but is transferred to costing P & L Accounting. 

 

It has already been stated that margin allowed for normal loss is an estimated and slight differences are bound to occur between the actual output of a process and that anticipated. These differences will not always represent incurred loss, on occasions. The actual loss will be less than that expected. Thus, when actual loss in a process is smaller than was expected, an abnormal gain results.

The abnormal gain account is to be debited for the loss of income on account of less quantity of sale of scrap available as a result of abnormal gain and normal process loss account credited accordingly. The balance is transferred to costing Profit & Loss A/C as abnormal gain.

 

In some circumstances, process losses result in substandard product or waste that can be sold as scrap. In such a situation it is usual to account for the scrap value by credited, that value against the normal loss in the process account ( rather than including the normal losses at zero cost) with a corresponding debit entry to a process scrap account. This value of normal losses is taken adjusted, in the scrap account, for any abnormal losses or abnormal gain (i.e. more or less scrap available for sale)

Scrap value have the effect of reducing average unit costs because costs, equal to the scrap value that is expected to be recovered, are effectively transferred out of the process account.

 

Sometimes the output of one process is transferred to a subsequent process, not at cost, but at a price showing a profit to the transfer or process. Transfer price may be made at a price corresponding to current wholesale market price or at cost plus an agreed percentage. The objects are:

a)      To show whether the cost o production competes with the market price,

b)      To make each process stand on its own efficiency and economies i.e. the Transferee processes are not given the benefits of economics affected in the earlier process.

This system involves a rather unnecessary complication of the accounts, as the desired comparisons could be prepared on separate cost reports for each process or by adopting a standard costing system, when standards could be set for each process. The complexity brought into the account arises from the fact that the inter process profits so introduced remain included in the prices of process stocks, finished stocks and WIP. For balance sheet purposes, inter process profits cannot be included in stock as firm cannot make a profit by trading it self. To avoid these complications a provision must be created to reduce the stock to actual cost price. This problem arises only in respect of stock on hand at the end of the period, because goods sold will have realized the internal profits.

Cost of closing stock can be easily obtained if we compare the accumulated cost and total in any process the cost of stock can be obtained by the formula-

 

Cost X closing stock. Total

 

The profit on closing stock can then be easily obtained by deducting the cost of stock thus arrived at from the value of stock.

 

·        Meaning of joint product

Joint product, thus represent two or more products separated in the course of some processing operation usually requiring further processing, each product being in such proportion that no single product can be designed as a major product. Joint product implies the following.

1)      They are produced from the same basic raw materials.

2)      They are comparatively of equal importance.

3)      They are produced simultaneously by a common process.

4)      They may require further processing after the point of separation

For e.g. – oil industry, gasoline, fuel oil, coal tar and kerosene are all produced from crude petroleum. These are known as joint products.

 

1) Correct collection, compilation and classification of process costs.

2) Determination of profit or loss on each line of manufacture.

3)      Determination of pattern of production and the most profitable product mix.

4)      Study the effect on cost and profits due to increase or decrease in production of joint products in order to fix the prices.

5)      Determining the profitability of selling joint products and by products as they come out at the split off point and maximize profit through marginal contribution analysis.

·        By products:

There are certain industries where the production of the main product is accompanied by production of one or more products. For e.g. in oil, refinery, crude oil is processed but by products i.e. sulphar, bitumen, chemical, fertilizer are obtained with the main products refined oil. In coke ovens, gas and tar are therefore, treated as by products. These miner and secondary products are known as by products. By products are defined as salable usable value incidentally produced in addition to the main product.

 

By products can be classified into two groups according to marketable condition at the split off point.

1)      Those sold in the split off point.

2)      Those, which may undergo further processing before sale.

A further feature of some production flow environment is the incidence of more than one product emerging from a single process operation. Costs incurred in a process prior to this point of product separation (often referred to as ‘the split off point’) are ‘common’ costs i.e. they are incurred jointly for the benefit of more than one product. Each of the products emerging at the split of point may be further processed to produce salable products.

It is important to appreciate that the apportionment of common process costs to joint products is arbitrary and of limited use. Whilst it is required for stock valuation it is of no use for decision-making and indeed may be misleading. No decisions, other than sales pricing, can be taken on individual products and pricing decisions should not be influenced by apportioned costs. Rather, the process as a whole must be considered.

 

 

Equivalent production means converting the incomplete production into its equivalent of complete units. In each process an estimate is made of the percentage completion of any work progress. The term equivalent unit means a notional quantity of completed units substituted for an actual quantity of incomplete physical units in progress, when the aggregate work content of the incomplete units is deemed to be equivalent to that the substitute quantity. (E.g. 100 units of 60% completed= 60 completed units). The principle applies when operation costs are being apportioned between work in progress and completed output. Thus in each process an estimate is made of the percentage completion of any work in progress. A production schedule and a cost schedule and a cost schedule will then be prepared. The work in progress is inspected and an estimate is made of the degree of completion, usually on a percentage basis. It is most important that this estimate is as accurate as possible because a mistake at this stage would affect the stock valuation used in the preparation of final account.

 

Equivalent units of work in progress: -

Actual number of units in progress of manufacture   X   percentage of work   completed.

 

The following steps are worth nothing in its calculation under different methods:

Under this method opening work-in-progress is stated in equivalent completed units by applying the percentage of work needed to complete the unfinished work of the previous period. Then number of units started and completed (i.e. units started less closing stock) are added. Further equivalent completed units of closing work-in-progress are also added to get the equivalent production.

Under this method units completed during the period (i.e. units started + opening stock units – closing stock units) are added to the units of closing stock completed during the period and out of the total units, opening stock units completed in previous year are deducted to get the units of equivalent production.

Under this method units of uncompleted input are added to the units in incomplete work in opening stock and out of the total units, incomplete work in closing stock are deducted to have units of equivalent production.

 

The problem of work-in-progress or unfinished units in process industries is a very important problem and frequently a difficult one. In most of the firms manufacturing is on a continuous basis and the problem of work-in-progress is quite common. The work-in-progress consists of direct materials, direct wages and production overhead. Direct material is put into the process at the beginning of the period and then added to in the course of the period. Some of this material is thus worked on, completed and transferred to stock. At the end of the period the closing work-in-progress consists of material which has only partially been processed but the full cost was incurred immediately on transfer from stores to the process. Thus it is necessary to assume the closing work-in-progress to be 100 percent complete as regards materials.

The concept of equivalent units will always be applied in the valuation of period end work in progress because it represents part completed units the part completed production is converted into an equivalent number of completed units. Invariably this will be different for materials, where in many situations equivalent units will not be required because all materials may be input early in a progress, as opposed to conversion costs (labour & overheads), which are added throughout the process operation.       

 

1. Where there is only closing work-in-progress but with no process losses:

Under this case, the existence of process losses is ignored. Closing work-in-progress is converted into equivalent units on the basis of estimates as regards degree of completion of materials, labour and production overhead. After calculating the equivalent units, it is not difficult to evaluate closing work-in-progress.

 

2. Where there is only closing work-in-progress but with process losses:

Losses are inherent in process operation. In case of normal loss, nothing should be added as equivalent production. Abnormal loss should, however, be considered as production of goods units completed during the period. If unit’s scrapped (normal) have any realizable value, the amount should be deducted from the cost of materials in the cost statement before dividing by equivalent production units. Abnormal gain will be deducted to obtain equivalent production. Special attention should be given while valuating abnormal losses or gains.

 

3. When there is opening as well as closing work-in-progress but with no process losses:

Often in a continuous process there will be opening as well as closing work-in-progress which are to be converted into equivalent of completed units for apportionment of process costs. The procedure of conversion of opening work-in-progress will vary depending upon whether average cost or first in first out or last in first out method of apportionment of costs is followed.

 Now we discuss both methods for valuation of work-in-progress one by one.

This method is useful when prices fluctuate from period to period. The closing valuation of work-in-progress in the old added to the cost of the new period and an average rate obtained which tends to even out price fluctuations. In calculating the equivalent production opening units will not be shown separately as units of opening work-in-progress are taken to be included in the units completed and transferred.

Under this method one assumption that the raw materials issued to work-in-progress pass through the finished goods in a progressive cycle, i.e., what comes first goes out first. This method is satisfactory when prices of raw materials and rates of direct labour and overheads are relatively stable. Work-in-progress at the end of period becomes the opening work-in-progress for the next period; the closing work-in-progress will be valued at costs ruling during the new period, while the opening work-in-progress will be valued at costs ruling during the old period. Thus, where costs are more or less the same in each period, this system is adequate. In this method opening incomplete units are to be converted to equivalent production after taking into consideration the percentage of work to be done and shown separately in the statement of equivalent production.

 

            Under this method, units lastly entering in the process are first to be completed. This assumption will definitely have a different impact on the cost of completed goods and closing inventory of work-in-progress. The completed goods will be shown at their current cost and the closing inventory of work-in-progress will continue to appear at the cost of opening inventory of work-in-progress.

 

When two or more dissimilar products are manufactured in the same process, a simple average process cost may give misleading results. In such as case, a close study of production and costs of each type of product is required to be made and the relative importance of one as compared to others should be indicted in terms of points to be used as a common denominator. In order to find out the cost of production under weighted average method, statement of weighted average production in terms of points and cost for each type of product should be prepared. The computation of weighted average process cost sheet will be easy, if due consideration to weights or points are given.

 

 

 

Under this method equivalent production units regarding opening and closing work-in-progress are to be calculated with due adjustment for process losses. Sometimes particulars relating to in between process (say process B) are given. In that case effective units will be calculated with reference to materials- I (entering from process A) and material – II (introduced in process B). Material I will be taken as 100 % complete in respect of abnormal loss / gain, finished goods and work-in-progress.