New Methods of Costing

8/6/2019 New Methods of Costing

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METHODS OFCOSTING


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Process costing example

MTR produces a garlic flavored tomato

sauce. Production of the sauce requires two

major processes:

ChoppingMixing &

canning


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Examples of industries using Process

Costing include:

Bottling

Pharmaceuticals

Cement Paint

Coal

Ice

Soap

Sugar

Chemicals

Cooking oil

Electric appliances Natural gas

Petroleum Products

Rubber

Steel

Textile.


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Process costing procedure

1. Factory is divided into a number of processes andan account is maintained for each process

2. Each process account is debited with materialcost, labor cost, direct expenses and overheadsallocated to the process

3. The output of a process is transferred to the next

process in the sequence

4. The finished output of the last process istransferred to the finished goods account


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Process costing procedure

Process A

a/c

Process

B a/cProcess C

a/c

Finished

goods a/c

input input inputoutput output output

Dr Dr Dr Dr Cr Cr Cr Cr


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Product passing through 2 processes. During the

quarter ending 31st march, 2004

Processes A B

Direct material 20000 30200

Direct labour 30000 40000

Direct expenses 5000 2260

Production overhead - -

Normal loss in input 10% 5%

Sale of scrap per unit 30 50

Production in units 920 units 870 units


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Process AParticulars Units Rs. Particulars Units Rs.

To units

introduced

1000 50000 By normal

loss

100 3000

To direct

Materials

20000 By Tr. To

process B

920 119600

To direct

wages

30000

To direct

expenses

5000

To prod.

Overhead

15000

To

abnormal

gain

20 2600

1020 122600 1020 122600


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Value of abnormal gain= 120000-3000 X20

/(units 1000-100)

=

2600


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Value of Abnormal Loss = Rs 212060-

2300/Units 920-46 * 4 units = Rs 960


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JOB COSTING

It is used by a manufacturer who produces

products as individual units or in distinct

batches or jobs. Production against customer order not for

stocks

Applied to printing work, motor car repair,machine tools, general engineering


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It is a method to ascertain the cost of the

industry which helps in determining the

profit or loss.

Enables management to detect which jobs

are profitable and unprofitable.

Helps management in controlling cost by

comparing the actual cost with estimated

cost.


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Procedure of job costing

Job number

Production Order

Job cost sheet Direct material

Direct wages

Direct expenses

Overhead


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Problem sum Materials Rs.6010

Wages A - 60 hrs @ 30rs per hour

B 40 hrs @ 20 per hour

C 20 hrs @ 50 per hour

Overhead Variable Overhead

A 15000 for 1500 labour hours

B - 4000 for 200 labour hours

C 12000 for 300 labour hours Fixed overhead estimated at 40,000 for 2000 normal working

hours

Calculate price to give profit 25% on selling price?


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SolutionDirect Material 6010

Wages Dept A- 60 hrs x 30 1800

B- 40hrs x 20 800

C- 20hrs x 50 1000 3600

Variables

Overhead

A- 60hrs x 10 600

B- 40hrs x 20 800

C- 20hrs x 40 800 2200

Fixed Overhead 120hrs x 20 2400

TOTAL COST 14,210

Profit(25%of sales) 4,737

SELLING PRICE 18,947


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Contract costing examples

Construction of dam, ship building,

road construction, civil engineering

works.

Special points in contract costing :

Escalation Clause

Notional profit

Estimated profit

Cost-plus contracts


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Contract a/c for year end 31/12/2002

PARTICULARS Rs.

PARTICULARS Rs.

To Materials 2,40,000 By materials in hand 20,000

To wages 3,28,000 By plant in hand

(40,000 less 20%)

32,000

To plant 40,000 By work in progressWork

certified(4,80,000*100/80)

6,00,000

To Notional profit c/d 26,800

Total 6,52,000 Total 6,52,00

0

To P&L a/c

(26,800*2/3*80/100)

14,293 By notional profit b/d 26,800

To Reserve 12,507

Total 26,800 Total 26,800

Documents

New Methods of Costing