Process Costing Flashcards
(14 cards)
Process Costing
costing method for when not possible to identify separate units of production
- due to continuous nature of production
- averaging out total costs of each process over total output
What are examples of when process costing may be used?
- oil refining
- paper production
- food/drink production
- chemical production
Normal Loss
Loss that is expected from experience of process
- wastage or evaporation
- not given a cost
Input - Process 1- Good output & normal loss
Abnormal Loss
excess of actual spoilage over normal spoilage
- valued at same cost per unit as good unit
- losses/gains taken to P/L
inputs - Process- Good output & normal loss & abnormal loss
Abnormal Gain
shortfall of actual spoilage from normal spoilage
- given a negative cost
input - process- good output & normal loss & abnormal gain
Joint Products
two or more products which are output from same processing operation
- are indistinguishable from each other up to point of separation
- saleable item & so separately costed
- oil refining
- timber - logs & paper
By- Products
supplementary or secondary product arising as result of process
- value is small relative to principal product
- any revenue earned is a bonus & not separately costed
- sawdust from timber
- fruit oils
Split off or separation point
point at which joint products and by products become separately identifiable
What are common or joint costs?
cost incurred up to split off/separation point
How are the net proceeds of by products dealt with?
- not allocated joint costs
- if usual occurrence- process costs reduced by net proceeds/ net realisable value
- if one off - treated as miscellaneous income
What are the different methods for apportioning joint costs and when best used?
physical measurement
- useful when joint products in same form
- when joint products are components and so have no sales value
relative sales value /sales value at split off point
- sold immediately with no further costs
- not in same form
Physical measurement apportionment of common costs
- common costs apportioned to joint products on basis of proportion that output of each product bears by weight or volume to total output
Method for using sales value at split off point for apportioning common costs?
cost is allocated according to products ability to produce income
- most widely used as assumption that some profit margin should be attained for all products under normal marketing conditions
What decision making problem can joint products creation bring?
- deciding whether to sell part-finished outposts or process further
- depends whether sale value of each component and further processing costs amount to a benefit
