Essay Proceess

8286 Words Sep 20th, 2012 34 Pages
Process costing
(a) Describe the characteristics of process costing
(b) Describe situations where the use of process costing would be appropriate
(c) Calculate the cost per unit of process outputs
(d) Explain the concepts of 'normal and abnormal' losses and 'abnormal' gains
(e) Prepare process accounts, involving normal and abnormal losses and abnormal gains
(f) Calculate and explain the concept of equivalent units
(g) Apportion process costs between work remaining in process and transfers out of a process using the weighted average and FIFO methods
(h) Prepare process accounts in situations where work remains incomplete
(i) Prepare process accounts where losses and gains are identified at different stages of the process

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Direct labour and production overhead may be treated together in an examination question as conversion cost.

Steps for dealing with process costing
Step 1 Determine output and losses. This step involves the following. • Determining expected output • Calculating normal loss and abnormal loss and gain • Calculating equivalent units if there is closing or opening work in progress

Step 2 Calculate cost per unit of output, losses and WIP. This step involves calculating cost per unit or cost per equivalent unit.
Step 3 Calculate total cost of output, losses and WIP. In some examples this will be straightforward; however in cases where there is closing and/or opening work in-progress a statement of evaluation will have to be prepared.

Step 4 Complete accounts. This step involves the following. • Completing the process account • Writing up the other accounts required by the question

Losses in process costing
Losses may occur in process. If a certain level of loss is expected, this is known as normal loss. If losses are greater than expected, the extra loss is abnormal loss. If losses are less than expected, the difference is known as abnormal gain.

Normal loss is the loss expected during a process. It is not given a

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