Process Costing Case

Process costing: Process costing is a method of allocating manufacturing cost to products to determine an average cost per unit. It is used by companies which mass produce identical or similar products. Since every unit is essentially the same, each unit receives the same manufacturing input as every other unit. Refineries, paper mills, and food processing companies are examples of businesses which use process costing.

Cost control: Cost control is the process of controlling the cost of a project within a predetermined sum throughout its various stages from inception to completion. The process or activity on controlling costs associated with an activity, process, or company.

Joint product: One of two or more products are produced by a single production process, such as milking a cow to produce both milk and cream. Most trade theories assume away joint products for simplicity.

By-product: A by-product is a secondary product derived from a manufacturing process or chemical reaction. It is not the primary product or service being produced. A by-product can be useful and marketable or it can be considered waste.

Abnormal loss: An abnormal loss is where total revenue does not cover total cost. It is a situation where a firm is making below normal profits. If abnormal losses persist in an industry firms will tend to leave, prices will rise and normal profits will be restored.

Defective work: When products produced are not up to the standard or they do not meet dimensional specification, they are known as defective work. Defective work occurs of various causes- such as sub-standard materials and carelessness in planning.

Spoilage: When materials are damaged in manufacturing operation in such a way that they cannot be rectified economically, they are known as Spoilage.

Contract costing: Contract costing is mainly associated with civil engineering works, although sometimes also with the manufacture of a major engineering structure over a considerable time (for example, a contract to manufacture a turbine generator).

Types of Contract costing: Generally there are two types of Contract: (i) Fixed price Contract; (ii) Cost plus Contract;

Fixed price Contract: Under these contracts both parties agree to a fixed contract price.

Cost plus Contract: Cost plus Contract is a contract in which the value of the contract is ascertained by adding a certain percentage of profit over the total cost of the work.

Process costing: Process costing is a method of allocating manufacturing cost to products to determine an average cost per unit. It is used by companies which mass produce identical or similar products. Since every unit is essentially the same, each unit receives