PPT - Valuation of Work in Progress | Cost Accounting - B Com PDF Download

 Page 1


Process Costing , 
Valuation
of 
work in progress
Page 2


Process Costing , 
Valuation
of 
work in progress
Process costing is….
According to Kohler,
“A method of accounting 
whereby costs are charged to processes or 
operations and averaged over units produced; it is 
employed principally where a finished product is 
the result of a more or less continuous operation, as 
in paper mills, refineries, canneries and chemical 
plants; distinguished from job costing, where costs 
are assigned to specific orders, lots or units.” 
Page 3


Process Costing , 
Valuation
of 
work in progress
Process costing is….
According to Kohler,
“A method of accounting 
whereby costs are charged to processes or 
operations and averaged over units produced; it is 
employed principally where a finished product is 
the result of a more or less continuous operation, as 
in paper mills, refineries, canneries and chemical 
plants; distinguished from job costing, where costs 
are assigned to specific orders, lots or units.” 
Features
? It is used when identical units are mass produced.
?The output consists of products which are 
homogeneous.
?Production is carried on in different stages having a 
continuous flow.
?Normal and Abnormal losses may arise in the 
processes.
?The output of a process may also be saleable in 
which case the process may generate some profit.
Page 4


Process Costing , 
Valuation
of 
work in progress
Process costing is….
According to Kohler,
“A method of accounting 
whereby costs are charged to processes or 
operations and averaged over units produced; it is 
employed principally where a finished product is 
the result of a more or less continuous operation, as 
in paper mills, refineries, canneries and chemical 
plants; distinguished from job costing, where costs 
are assigned to specific orders, lots or units.” 
Features
? It is used when identical units are mass produced.
?The output consists of products which are 
homogeneous.
?Production is carried on in different stages having a 
continuous flow.
?Normal and Abnormal losses may arise in the 
processes.
?The output of a process may also be saleable in 
which case the process may generate some profit.
limitations
• Process costing is based on historical cost and thus 
may not be useful for future managerial decision-
making.
• Process costing system is based on average costs. 
And average costs do not always reflect the true 
costs. 
• Unfinished units at the end of the period are 
expressed in equivalent production units. This 
introduces subjectivity in cost determination.
Page 5


Process Costing , 
Valuation
of 
work in progress
Process costing is….
According to Kohler,
“A method of accounting 
whereby costs are charged to processes or 
operations and averaged over units produced; it is 
employed principally where a finished product is 
the result of a more or less continuous operation, as 
in paper mills, refineries, canneries and chemical 
plants; distinguished from job costing, where costs 
are assigned to specific orders, lots or units.” 
Features
? It is used when identical units are mass produced.
?The output consists of products which are 
homogeneous.
?Production is carried on in different stages having a 
continuous flow.
?Normal and Abnormal losses may arise in the 
processes.
?The output of a process may also be saleable in 
which case the process may generate some profit.
limitations
• Process costing is based on historical cost and thus 
may not be useful for future managerial decision-
making.
• Process costing system is based on average costs. 
And average costs do not always reflect the true 
costs. 
• Unfinished units at the end of the period are 
expressed in equivalent production units. This 
introduces subjectivity in cost determination.
Work-in-progress (WIP)
?It is the sum of all costs put into the production 
process to manufacture products that are partially 
completed.
?This concept is used to describe the flow of 
manufacturing costs from one area of production to 
the next.
?The balance in WIP represents all production costs 
incurred for partially completed goods.