Top 13 Process Costing Problems and Solutions

Following are the problems and solutions of Process Costing in form of cost accounting.

process costing problems and solutions
process costing problems and solutions

Process Costing: Problems and Solutions

1. What do mean by Process costing method?

It is a method of cost determination and is used in manufacturing concerns where raw material passes through many processes up to finished goods.

2. Explain the objective of the Process Costing method?

It is useful to determine the cost of the process, ascertain wastage in each process, ascertain the price of by-products and join products, and segregate total expenses.

3. Define Joint Product?

Joint products are produced by the same type of raw material in the same process having nearly equal importance and value as of main product and require further processing.

4. What do mean by Joint Cost?

Cost prior to the segregation point is known as joint cost as it is related to the main product, joint product & by-product.

5. What is Scrap?

It is incidental residue material from certain manufacturing operations. It is measurable but has a relatively minor recovery value than by-products.

6. What is Abnormal Wastage?

When actual wastage is more than normal wastage the difference is termed abnormal wastage.

7. What is represented by the excess of Actual wastage over Normal Wastage?

Excess of actual wastage over normal wastage is abnormal is wastage.

8. What do you mean by abnormal Effective?

When actual wastage is less than normal wastage the difference Is termed as abnormal effectiveness the balance of this account is transferred to profit or loss.

9. What are the main products and by-products in the dairy industry and coke industries?

Industry: dairy industry, coke industry.

Main products: butter, cheese, coke.

By-products: skimmed milk, gas coal tar, benzol, ammonia.

10. What is the difference between By Product and Scrap?

A joint product is an incidental product of the main product having saleable value while scrap is a loss of material during production.

11. What journal Entry is Passed for Accounting Abnormal Effective?

Accounting entry for the sales value of abnormal effects is made as follows:

Abnormal effective account.

     To Normal wastage account.

At the end of the year balance of abnormal effects is transferred to the costing profit & loss account:

Abnormal effective account.

     To Costing profit& loss account.

12. Differentiate between Abnormal Waste and Abnormal Effective?

When the actual loss is more than the normal loss it is called an abnormal loss while if the actual loss is less than the normal loss it is called an abnormal effective abnormal loss is transferred in the debit side of the costing profit and loss account.

While abnormal effective is transferred is the credit side of costing profit and loss account. Abnormal loss and abnormal effectiveness are reduced by the sale value of scrap.

13. What is Interprocess Profit?

When the transfer of manufacturing goods from one process to another is being done after adding a certain percentage of profit. This creates a problem of interprocess profit main advantage is that the efficiency of every process is ascertained.

Valuation of finished stock and work in process will not be realistic as it includes interprocess profit and loss accounts that will not exhibit the correct amount of profit this problem can be eliminated if a reserve for unrealized profit is made.

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