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Preparation of Process Accounts

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

Comments

: 3
  1. i am confused in how we do this overhead ,,how is it been distributed

    ReplyDelete
    Replies
    1. it's by the use of direct wages bases, means 3600 will be distributed bases on their direct wages, the higher the wages the higher the amount of overhead to any process vice versa

      Delete
  2. Hardeep sharma

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Accounting Education: Preparation of Process Accounts
Preparation of Process Accounts
Accounting Education
https://www.svtuition.org/2012/11/preparation-of-process-accounts.html
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