PROCESS COSTING IN PASUPATI BREADS

: PROCESS COSTING IN PASUPATI BREADS

The process costing system is commonly used where products are manufactured under mass production methods or by continuous processing. Common Industries using process costs are paper, steel, chemicals, bakery and textiles. Assembly-type processes such as washing machines and electrical appliances would also use process costing. This costing system is used for uniform, or homogeneous, products. It averages the costs over all units to come to the per unit cost. This is in contrast to other types of costing systems, such as job-order costing that is used for products that are in differentiated batches. Unlike job-order costing, process costing is tracked using a work-in-process account for each department, rather than through subsidiary ledgers.

Process costing is ordinarily used when products require a number of different production operations which are performed in two or more departments or cost centers. For example, the first operation may be performed in Department A, such as a machining or mixing process. After completion the units are transferred to Department B for an assembly or refining process. When this is completed, the units are transferred to finished goods inventory.

After my BBA, I worked in the Pasupati Breads as a part time employee. During my working period in the Pasupati Breads I worked in the marketing department.

Pasupati Bread manufactures breads and sales its product all over Nepal. Pasupati Breads applies process costing in which each unit of bread passes through two departments: the Processing Department and the Testing Department. Every effort is made to make sure that all Bakery products are identical and meets the quality standard of the Pasupati Bread. Direct materials are added at the beginning of the process in Assembly. Additional direct materials are added at the end of processing in the Testing Department. Conversion costs are added evenly during both processes. They include manufacturing labor, indirect materials, energy, and plant depreciation and so on. After leaving the Testing Department all breads are transferred to Finished Goods.

                 In Pasupati Breads, under a process costing system, costs are accumulated according to each Department, cost center, or process. The average unit cost for a day, week, or year is obtained by dividing the department cost by the number of units of breads produced during the particular period. In addition to this, in a process cost system procedures Pasupati Breads accumulate direct materials, direct labor, and factory overhead costs by department. For this, generally it

§  Determines the unit cost for each department.

§  Transfers costs from one department to the next.

§  Assigns costs to work-in-process inventory.

In addition to this, in Pasupati Breads, The first department in the process makes the first entry into the work-in-process account, generally for the direct raw materials. As the products move from department to department, entries are made to each work-in-process department account. Actual overhead costs are recorded; no contra-account is needed because there is no over- or under-applied overhead due to the actual cost being applied. Indirect costs are applied to the overhead account in actual amounts and normal spoilage is recorded as a cost to the work-in-process account while abnormal spoilage is removed from the work-in-process account and applied to a separate account so it can be addressed by management.