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Process account is the account which is made for calculating the cost of specific process. We show the material cost, labour cost and overhead cost in the debit side of process account. Its total will be transfer to next process. If there is the last process, then last process account’s total debit side total will be transferred to finished stock account.

Neo Pharma process a product through three distinct stages, these production of on process being passed on to the next process and so on to the finished product. Details of the cost incurred in each process are given below.

 Process A Process B Process C Raw Material 1000 800 200 Direct Wages 500 600 700 Direct Expenses 150 250 500

The overhead expenses or the period amount to Rs. 3600 and is to be distributed to the process on the basis of direct wages.

There were no stocks in any of the process either at the beginning or at the close of the period.

Assuming the output was 1000 kilos, show the process cost of A, B and C indicating also the cost per kilo of each element of cost and the output in each process.

If 10% of the output is lost in storage and giving samples, what should be the selling price per unit to make a gross profit of 33.33% on the selling price.

Process A Account

 Debit Amount Credit Amount Raw Material 1000 Process B Account 2650 Direct wages 500 Direct Expenses 150 Overheads 1000 2650 2650

Process B Account

 Debit Amount Credit Amount Process A Account 2650 Process C Account 5500 Raw Material 800 Direct Wages 600 Direct Expenses 250 Overhead 1200 5500 5500

Process C Account

 Debit Amount Credit Amount Process B Account 5500 Finished Stock Account 8300 Raw Material 200 Direct Wages 700 Direct Expenses 500 Overhead 1400 8300 8300

If 10% is lost
Total Output = 900 Kgs
Total Cost = Rs. 8300
Cost Per Kg = 8300 / 900 = Rs. 9.22
Selling Price to earn 33.33% on Selling price
Cost price = 100 - 33.33 = Rs. 66.67
If cost is Rs. 66.67, sale value = 100
If cost is Rs. 1, sale value = 100 / 66.67
If cost is Rs. 8300, sale value = 100/66.67 X 8300 = 12449.37
Selling price per unit = 12449.37/900 = Rs. 13.83

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Accounting Education: Preparation of Process Accounts
Preparation of Process Accounts
Accounting Education
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