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\u00a0<\/span><\/b><\/p>\n The cost accounting system used by process is called process costing. <\/span><\/p>\n To prepare bread, we need mixing of white flour, ghee, sugar, eggs, baking powder etc.<\/span><\/p>\n From this mixture, different size of bread can be prepared. <\/span><\/p>\n These sized are baked in oven. <\/span><\/p>\n Baked bread cut and packed. <\/span><\/p>\n \u00a0<\/span><\/p>\n Process costing is applied in the oil refinery, chemical, timber, textile, sugar mill and food processing industries. <\/span><\/p>\n These companies set the right prices for their products and determine whether costs are tracking in line with forecasts. <\/span><\/p>\n \u00a0<\/span><\/p>\n A separate process account is prepared for each process. <\/span><\/p>\n Materials, labour, overhead, machine expenses etc are debited in each process. <\/span><\/p>\n Process costing helps to determine the cost of their products at each stage of the process of manufacturing. <\/span><\/p>\n It helps to control costs, evaluate performance and check the products at each stage. <\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n The profit associated with the transfer of goods from one process to another process is called inter-process profit. <\/span><\/p>\n Normally, finished goods are transferred to next process immediately at a cost basis. <\/span><\/p>\n But some processes industries transfer next process by include some profit percentage. <\/span><\/p>\n This incorporated profit is called inter- process profit. <\/span><\/p>\n While transferring goods to next process, some profit is added. <\/span><\/p>\n It is called transfer price or mark-up price. <\/span><\/p>\n \u00a0<\/span><\/p>\n Cost of closing stock<\/span><\/p>\n<\/td>\n = (Cost x Closing stock) \u00f7<\/span> Total cost<\/span><\/p>\n<\/td>\n<\/tr>\n Unrealized profit <\/span><\/p>\n<\/td>\n = Closing stock \u2013<\/span> Cost of closing stock <\/span><\/p>\n<\/td>\n<\/tr>\n Gross profit (% on cost)<\/span><\/p>\n<\/td>\n = Total cost x<\/span> % \u00f7 100<\/span><\/p>\n<\/td>\n<\/tr>\n Transfer price <\/span><\/p>\n<\/td>\n = Total cost +<\/span> Gross profit<\/span><\/p>\n<\/td>\n<\/tr>\n Gross profit (% on sales)<\/span><\/p>\n<\/td>\n = Total cost x % \u00f7 (% \u2013 100)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 [<\/span>\u2235<\/span> % on sales or transfer price]<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/i><\/b><\/span><\/p>\n The main objectives of inter process profit are:<\/span><\/p>\n To access (review, evaluate) profit of each process.<\/span><\/p>\n To access (review, evaluate) performance of each process.<\/span><\/p>\n To access (review, evaluate) whether product can compete with market product.<\/span><\/p>\n It helps to take decision about make or buy.<\/span><\/p>\n It helps to determine selling price of semi-finished goods.<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Process I Account<\/span><\/b><\/p>\n Particulars<\/span><\/p>\n<\/td>\n Cost<\/span><\/p>\n<\/td>\n Profit<\/span><\/p>\n<\/td>\n Total<\/span><\/p>\n<\/td>\n Particulars <\/span><\/p>\n<\/td>\n Cost<\/span><\/p>\n<\/td>\n Profit<\/span><\/p>\n<\/td>\n Total<\/span><\/p>\n<\/td>\n<\/tr>\n To Opening stock<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n By Process II account<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n<\/tr>\n Add: Direct materials <\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Direct labour <\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Cost<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Less: Closing stock<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Prime cost<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Add: Production overhead<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Total\/Process cost<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n –<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Add: Gross profit<\/span><\/p>\n<\/td>\n –<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Transfer price<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/b><\/p>\n Gross profit (% on sales or transfer price) =<\/span> Total cost x<\/span> % \u00f7 (100 \u2013 %) <\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Process II Account<\/span><\/b><\/p>\n Particulars<\/span><\/p>\n<\/td>\n Cost<\/span><\/p>\n<\/td>\n Profit<\/span><\/p>\n<\/td>\n Total<\/span><\/p>\n<\/td>\n Particulars <\/span><\/p>\n<\/td>\n Cost<\/span><\/p>\n<\/td>\n Profit<\/span><\/p>\n<\/td>\n Total<\/span><\/p>\n<\/td>\n<\/tr>\n To Opening stock<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n By Process III account<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n<\/tr>\n Add: Process I<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Add: Direct materials <\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Direct Labour <\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Cost<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Less: Closing stock<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Prime cost<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Add: Production overhead<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Total\/Process cost<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n –<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Add: Gross profit<\/span><\/p>\n<\/td>\n –<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n Transfer price<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/b><\/p>\n Cost of closing stock = (Cost x Closing stock) \u00f7 Total cost<\/span><\/p>\n Unrealized profit\u00a0\u00a0 = Closing stock \u2013 Cost of closing stock <\/span><\/p>\n Gross profit (% on sales or transfer price) =<\/span> Total cost x<\/span> % \u00f7 (100 \u2013 %) <\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Process III Account<\/span><\/b><\/p>\n Particulars<\/span><\/p>\n<\/td>\n Cost<\/span><\/p>\n<\/td>\n Profit<\/span><\/p>\n<\/td>\n Total<\/span><\/p>\n<\/td>\n Particulars <\/span><\/p>\n<\/td>\n Cost<\/span><\/p>\n<\/td>\n Profit<\/span><\/p>\n<\/td>\n Total<\/span><\/p>\n<\/td>\n<\/tr>\n To Opening stock<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n \u00a0<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n By Finished goods account <\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n xxxx<\/span><\/p>\n<\/td>\n<\/tr>\nProcess Costing <\/span><\/b><\/b><\/h2>\n
Inter-Process Profit in Process Costing<\/span><\/b><\/b><\/h3>\n
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