Process Costing: Equivalent Production - Dani Ki Costing - CA IPCC Video Lectures
Process Costing: Equivalent Production - Dani Ki Costing - CA IPCC Video Lectures | Process Costing: Equivalent Production - Dani Ki Costing - CA IPCC Video Lectures | Process Costing: Equivalent Production - Dani Ki Costing - CA IPCC Video Lectures | Process Costing: Equivalent Production - Dani Ki Costing - CA IPCC Video Lectures
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Dani
Ki Costing
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IPCC
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Process
Costing: Equivalent Production
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Lecture
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The
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Back to the chapter list of the CA IPCC Video Lectures Index
Process Costing - Concept of
Equivalent Production
In general, process costing is a technique of calculating the cost
of a process. It thereby helps to derive at the price per unit. It consists of
calculation of normal and abnormal gain and loss. In a continuous process, the
output of one process is considered as the input of the succeeding process.
Process costing becomes more difficult when joint / by products are produced in
a process as costing them individually will be very complicated.
The limitation of simple process costing is that accurate cost cannot
be derived in every case in different business because the manufacturing
process is not always continued in every concern. So, opening work – in -
progress and closing work – in – progress may come into existence whenever
there is a break in manufacturing activity, which will thereby break the chain
of processes. To overcome this limitation a method called Equivalent Production
units will be of great help.
In Equivalent Production Unit, the products which are partly
finished are also considered as finished products. Completed units are
calculated as a percentage of completion of the process. To display it
mathematically Equivalent completed units can be calculated as follows:
Equivalent Production units = (Actual Number of Units in process of
manufacture) * (% of work completed)
This can be made clearer with the help of an example. If 100 units
are under manufacturing process and the % of work completed on the products
under process is 75%, then 75 units will be considered as fully finished goods
and costing will be derived on such basis. Different methods are used to
calculate the value of work in progress, such as First in first out method,
last in first out method and average cost method.
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