Important Rules for Process Costing

Important Rules for Process Costing

1.     If the degree of completion ( DOC )of closing stock of WIP is not known , then assume DOC as follows :

a)      Raw Material (RM)  = 100%

b)      Labour & O/H           = 50%

2.     Treatment of Normal Loss units in Statement of Equivalent Production :

The units of normal loss will be shown in output column, but not in equivalent column.

3.     Treatment of Normal Realizable Value or Normal disposal cost of “Normal Loss units “

a.)    The normal realizable value of normal loss units will be reduced from the cost of raw material consumed while computing cost per unit.

b.)    The normal disposal cost of “Normal Loss Units” will be added to the cost of raw material consumed while computing cost per unit.

4.     Treatment of Abnormal loss in statement of Equivalent Production

a.)    The units of abnormal loss will be added in output column & in equivalent units column also.

b.)    Unless otherwise stated , the DOC of Abnormal loss units is taken as 100% in all respects.

          To be continued……………………………………………………