# Module 10 : Product and Process Costing. Lecture 1 : Product and Process Costing. Objectives

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1 Module 10 : Product and Process Costing Lecture 1 : Product and Process Costing Objectives In this lecture you will learn the following Introduction. Product costing. Job costing. Process costing. Cost Sheet. Costing Procedure. Loss treatment. Equivalent units. Operation costing. Product Costing Financial Accounting Product costs are used to value inventory and to compute cost of goods sold. Cost and Managerial Accounting Product costs are used for planning, control, directing, and management decision making. The product costs for a manufacturing firm include only the costs necessary to complete the product. The product inventory for a manufacturing firm is treated as an asset until it has market value and is sold.

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4 Job Costing in Non-manufacturing Organizations: Job Costing Usually Cost sheet is prepared to record and report the costs. It may be prepared for a job or for some period. COST SHEET For June Particulars Total Cost Per Unit Direct Material Opening Stock of Raw Material Add: Purchase Less: Closing stock of Raw material Direct Labour Direct Expenses Prime Cost

6 Output Normal Loss Process % Process % Process % Solution Process 1 A/c Particular Units Total Cost Particular Units Total Cost Material Normal Loss Wages Transfer to Process Other Expenses Factory Overheads Process 2 A/c Particular Units Total Cost Particular Units Total Cost Transfer from Process Normal Loss Material Abnormal Loss Wages Transfer to Pr Other Expenses Factory Overheads Process 3 A/c Particular Units Total Cost Particular Units Total Cost Transfer from Process Normal Loss Material Finished Stock Wages Other Expenses Factory Overheads 9709 Abnormal Gain Equivalent Units Thus, in Process Costing Cost per unit = Cost/Output Units What can be done when partially produced units remain in stock? To ascertain the cost of each completed unit it is necessary to ascertain the cost of work in progress in the beginning and at the end of the process. Hence the method of converting partly finished units to equivalent finished units is used. Equivalent production means converting the incomplete production units into their completed units. Equivalent completed units = {Actual number of units in the process} X {percentage of work completed} Conversion + direct material applied: The term equivalent unit cost refers to conversion and

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