Process costing is a form of costing where production follows a series of sequence or processes. In process costing the output of any given process becomes the input of the
next process.
It’s used in such industries as oil refineries, food processing, paper processing etc

Process losses
With many forms of production processes the quantity of output could be less than the input quantity. This may be due to loses through evaporation, breakages, withdrawal for testing and inspection etc.

Process losses are classified into 2:
a) Normal process losses
b) Abnormal process losses

Normal process losses
These are unavoidable loses arising from the nature of the production process and it’s therefore logical that the cost of such losses be included as part of good production cost
(i.e. as part of the cost of good output)
If any value can be recovered (salvaged) from the sale of normal loss items, then this should be credited to the process a/c thereby reducing the overall process cost.

Abnormal process losses and gains
These are losses above the level deemed to be normal. They are unforeseen losses which occur due such factors as plant breakdown, industrial accidents, defective materials,
labour strikes etc.

They can be avoided. The cost of producing abnormal loss units are therefore allocated to such units. I.e. they bear their own cost
On the other hand, unexpected favourable conditions may apply in a given period and the actual losses may be lower than the normal losses. This gives rise to abnormal gain.

Revision kits and past papers with answers

(Visited 31 times, 1 visits today)
Share this:

Written by 

Leave a Reply

Your email address will not be published. Required fields are marked *