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project on process costing of amul pdf

Types of Process Costing

There are three types of process costing, which are:

Weighted average costs. This version assumes that all costs, whether from a preceding period or the current one, are lumped together and assigned to produced units. It is the simplest version to calculate.
Standard costs. This version is based on standard costs. Its calculation is similar to weighted average costing, but standard costs are assigned to production units, rather than actual costs; after total costs are accumulated based on standard costs, these totals are compared to actual accumulated costs, and the difference is charged to a variance account.
First-in first-out costing (FIFO). FIFO is a more complex calculation that creates layers of costs, one for any units of production that were started in the previous production period but not completed, and another layer for any production that is started in the current period.
There is no last in, first out (LIFO) costing method used in process costing, since the underlying assumption of process costing is that the first unit produced is, in fact, the first unit used, which is the FIFO concept.

Why have three different cost calculation methods for process costing, and why use one version instead of another? The different calculations are required for different cost accounting needs. The weighted average method is used in situations where there is no standard costing system, or where the fluctuations in costs from period to period are so slight that the management team has no need for the slight improvement in costing accuracy that can be obtained with the FIFO costing method. Alternatively, process costing that is based on standard costs is required for costing systems that use standard costs. It is also useful in situations where companies manufacture such a broad mix of products that they have difficulty accurately assigning actual costs to each type of product; under the other process costing methodologies, which both use actual costs, there is a strong chance that costs for different products will become mixed together. Finally, FIFO costing is used when there are ongoing and significant changes in product costs from period to period – to such an extent that the management team needs to know the new costing levels so that it can re-price products appropriately, determine if there are internal costing problems requiring resolution, or perhaps to change manager performance-based compensation. In general, the simplest costing approach is the weighted average method, with FIFO costing being the most difficult.
The calculation of process costs is an accounting methodology that tracks and accumulates direct costs, and allocates indirect costs of a manufacturing process. The costs are allocated to the products, usually in a large lot, which can include the production of a whole month. Finally, costs must be allocated to individual product units. It assigns average costs to each unit, and it is the opposite end of the labor cost that attempts to measure the individual production costs of each unit. The cost of the process is usually a significant chapter. It is a method to assign costs to production units in companies that produce large quantities of homogeneous products.

The cost of the process is a type of calculation of operating costs that is used to determine the cost of a product in each process or stage of manufacture. CIMA defines the cost of the process as "The cost calculation method applicable when the goods or services result from a sequence of continuous or repetitive operations or processes.The costs are averaged over the units produced during the period". The calculation of the cost of the process is appropriate for industries that produce homogeneous products and where production is a continuous flow. A process can be referred to as the subunit of an organization specifically defined for the purpose of collecting costs.

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