Job, Batch and

Process Costing
Sujeewa Damayanthi (PhD)
Department of Accounting
Faculty of Management & Finance
University of Colombo
Learning outcomes
• Identify the characteristics of various costing methods.

• Compare and contrast each of these cost methods.

• Explain the suitability of each method to be used in

practice.
• Apply the knowledge gained to calculate and determine
costs of products.

ACT 1201 MANAGEMENT ACCOUNTING 2

Cost related terms
• Cost object

• Direct cost

• Indirect cost

• Cost assignment

• Cost tracing

• Cost allocation

ACT 1201 MANAGEMENT ACCOUNTING 3

 Job costing
• Job costing is most suited for those situations where
goods and services are produced upon the receipt of
the customer order, according to customer
specifications or in separate batches.
• Cost object is a unit or multiple units of a distinct
product or service of a particular job.
• Each job uses a different amount of resources.

ACT 1201 MANAGEMENT ACCOUNTING 4

Job costing
• Manufacturing costs are accumulated by
individual job.
Work in Progress

Job A Job B Job C

Finished Goods
Consists of stock of
unlike units
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 Process costing
• Process costing is used in industries where masses of
similar products or services are produced.
• Cost objects may go through a number of processing
departments. As production moves from process to
process, costs are transferred with it.
• A processing department is an organizational unit where
work is performed on a product and direct and indirect
costs are added to the products.
ACT 1201 MANAGEMENT ACCOUNTING 6
 Process costing
• Two essential features of processing departments;
―The activities in the processing department is
uniformly performed on all units
―The output of the processing department is identical
• Therefore, unlike in job costing indirect costs would be
treated as part of the direct costs of the process, since
these costs are directly attributable to the cost object.
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Process costing
• Manufacturing costs are accumulated by each
process and average cost per unit of output is
calculated.
Work in Progress

Process A Process B Process C

Finished Goods
Consists of stock of
like units
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Practical examples

ACT 1201 MANAGEMENT ACCOUNTING 9

Practical examples

ACT 1201 MANAGEMENT ACCOUNTING 10

 Similarities and differences
between job and process
costing
• What are the similarities?

• What are the differences?

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 The basics of process
costing
• To begin our discussion about how to accumulate costs
in a process manufacturing environment we shall first
consider a situation where all units of production are
fully complete (no work in progress units).
• Under this assumption we will be discussing six
independent situations.

ACT 1201 MANAGEMENT ACCOUNTING 12

The basics of process
costing
• Case 1 – No losses within the process
• Case 2 – Normal loss with no scrap value
• Case 3 – Abnormal loss with no scrap value
• Case 4 – Normal loss with a scrap value
• Case 5 – Abnormal loss with a scrap value
• Case 6 – Abnormal gain with a scrap value

ACT 1201 MANAGEMENT ACCOUNTING 13

The basics of process
costing
• Example 1
ABC company produces liquid fertilizer within a
single production process. During the month of July
the input to the process was 12,000 liters at a cost
of Rs. 120,000. There were no opening and closing
inventories and all output was fully complete.

ACT 1201 MANAGEMENT ACCOUNTING 14

 The basics of process
costing
Case Input Output Normal loss Abnormal Scrap
(Liters) (Liters) (Liters) (loss)/gain Value
(Liters) (Rs.)

1 12,000 12,000 0 0 0
2 12,000 10,000 2,000 (1/6) 0 0
3 12,000 9,000 2,000 (1/6) (1,000) 0
4 12,000 10,000 2,000 (1/6) 0 5
5 12,000 9,000 2,000 (1/6) (1,000) 5
6 12,000 11,000 2,000 (1/6) 1,000 5

ACT 1201 MANAGEMENT ACCOUNTING 15

The basics of process
costing
• Requirement
Prepare the process account and calculate the cost
per liter of output for the single process for each of
the six cases listed.

ACT 1201 MANAGEMENT ACCOUNTING 16

Case 1 – No losses
within the process
• Per unit cost:

=
= Rs. 10 per liter

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 Case 1 – No losses
within the process
Process account
Liters Unit Rs. Liters Unit Rs.
cost cost
Input 12,000 10 120,000 Output 12,000 10 120,000
cost to FG
120,000 120,000

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Case 2 – Normal loss
with no scrap value
• What are normal losses?
• Per unit cost:

=
= Rs. 12 per liter

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 Case 2 – Normal loss
with no scrap value
Process account
Liters Unit Rs. Liters Unit Rs.
cost cost
Input 12,000 10 120,000 Normal 2,000 - -
cost loss
Output 10,000 12 120,000
to FG
120,000 120,000

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Case 3 – Abnormal loss
with no scrap value
• What are abnormal losses?
• Per unit cost:

=
= Rs. 12 per liter

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 Case 3 – Abnormal loss
with no scrap value
Process account
Liters Unit Rs. Liters Unit Rs.
cost cost
Input 12,000 10 120,000 Normal 2,000 - -
cost loss
Output 9,000 12 108,000
to FG
Ab. loss 1,000 12 12,000
120,000 120,000

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Case 4 – Normal loss
with a scrap value
• Per unit cost:

=
= Rs. 11 per liter

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 Case 4 – Normal loss
with a scrap value
Process account
Liters Unit Rs. Liters Unit Rs.
cost cost
Input 12,000 10 120,000 Normal 2,000 - 10,000
cost loss
Output 10,000 11 110,000
to FG
120,000 120,000

ACT 1201 MANAGEMENT ACCOUNTING 24

Case 5 – Abnormal loss
with a scrap value
• Per unit cost:

=
= Rs. 11 per liter

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 Case 5 – Abnormal loss
with a scrap value
Process account
Liters Unit Rs. Liters Unit Rs.
cost cost
Input 12,000 10 120,000 Normal 2,000 - 10,000
cost loss
Output 9,000 11 99,000
to FG
Ab. loss 1,000 11 11,000
120,000 120,000

ACT 1201 MANAGEMENT ACCOUNTING 26

Case 5 – Abnormal loss
with a scrap value
Abnormal loss account
Rs. Rs.

Process account 11,000 Cash (scrapped units) 5,000

Profit and loss a/c 6,000

11,000 11,000

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Case 6 – Abnormal gain
with a scrap value
• Per unit cost:

=
= Rs. 11 per liter

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 Case 6 – Abnormal gain
with a scrap value
Process account
Liters Unit Rs. Liters Unit Rs.
cost cost
Input 12,000 10 120,000 Normal 2,000 - 10,000
cost loss
Ab. gain 1,000 11 11,000 Output 11,000 11 121,000
to FG
131,000 131,000

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Case 6 – Abnormal gain
with a scrap value
Abnormal gain account
Rs. Rs.

Normal loss a/c 5,000 Process account 11,000

Profit and loss a/c 6,000
11,000 11,000

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 Process costing with
ending work in progress
• Consider situations where output started during a
period is partially complete at the end of the period.
• Under this situation, unit cost cannot be computed by
simply dividing the total cost of the period by the
output of that period.
• Work in progress must be convert into finished
equivalent.
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 Process costing with
ending work in progress
• How to calculate equivalent production?
• Number of units in progress multiplied by the
percentage of completion.
• If the production cost of the period is Rs. 180,000 and
8,000 units were completed during the period and
another 2000 units were partly (50%) completed.
Calculate the unit cost.
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Process costing with
ending work in progress
• Equivalent production = 8,000 + (2,000*50%)
= 9,000 units
• Per unit cost =
= Rs. 20 per unit
• Distribution of cost would be;
Cost of completed units = 160,000 (8,000* Rs. 20)
Work in Progress = 20,000 ( 1,000* Rs. 20)

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 Process costing with
ending work in progress
• There are situations where, in ending work in progress,
not all elements of costs have reached the same degree
of completion.
• What will be the treatment?
• Separate equivalent production calculations must be
made for each element of cost.

ACT 1201 MANAGEMENT ACCOUNTING 34

 Process costing with
ending work in progress
• Example 2

Alpha company produces a product that pass through 2

processes. The following information relate to the 2 processes.

No opening work in progress. Materials are added at the start

of the process A and at the end of process B and conversion
costs are added uniformly and estimated to be 50% complete
for both processes.
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 Process costing with
ending work in progress
• Example 2
Process A Process B
Units introduced into the process 14,000 10,000
Units transferred to the next process 10,000 9,000
Closing WIP 4,000 1,000
Cost of production transferred from Rs. 270,000
process A
Material cost added Rs. 210,000 Rs. 108,000
Conversion costs Rs. 144,000 Rs. 171,000

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Process costing with
ending work in progress
• Calculation of the cost per unit for process A
Cost Total Total equivalent unitsCost per
element cost unit
Materials 210,000 10,000 + (4,000*100%) Rs. 15
14,000
Conversion 144,000 10,000 + (4,000*50%) Rs. 12
cost 12,000
354,000 Rs. 27

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Process costing with
ending work in progress
• Calculation of value of WIP of process A
Cost element Total cost
Materials (4000 units *Rs. 15) 60,000
Conversion cost (2,000 units *Rs. 12) 24,000
84,000

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 Process costing with
ending work in progress
Process A account
Rs. Rs.

Materials 210,000 Completed units 270,000

transferred to Process B
Conversion cost 144,000 Closing WIP c/fwd 84,000
354,000 354,000
Opening WIP b/fwd 84,000

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Process costing with
ending work in progress
• Calculation of the cost per unit for process B
Cost Total Total equivalent units Cost per
element cost unit
Previous 270,000 9,000 + (1000*100%) Rs. 27
process cost 10,000
Materials 108,000 9,000 + (1000*0%) Rs. 12
9,000
Conversion 171,000 9,000 + (1,000*50%) Rs. 18
cost 9,500
549,000 Rs. 57

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Process costing with
ending work in progress
• Calculation of value of WIP of process B
Cost element Total cost
Previous process cost (1000 units *Rs. 27) 27,000
Materials -
Conversion cost (500 units *Rs. 18) 9,000
36,000

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 Process costing with
ending work in progress
Process B account
Rs. Rs.

Previous process 270,000 Completed units 513,000

cost transferred to FG
Materials 108,000 Closing WIP c/fwd 36,000
Conversion cost 171,000
549,000 549,000
Opening WIP b/fwd 36,000

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 Process costing with beginning
and ending work in progress
• When opening work in progress exist an assumption must
be made regarding the allocation of this opening work in
progress to the current accounting period.
• Assumption 1: Opening WIP is inseparably merged with the
current period units – the weighted average method
• Assumption 2: Opening WIP is the first group of units to be
processed and completed in the current period – the first in
first out method
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 Process costing with beginning
and ending work in progress
• Example 3

Beta company has 2 processes, X and Y. Materials are

added at the start of the process X and additional material
is added to process Y when the process is 70% complete.
Conversion costs are added uniformly throughout both
processes. Data for the period include following.

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 Process costing with beginning
and ending work in progress
• Example 3
Process X Process Y
Opening WIP 6,000 units 60% 2,000 units 80%
concerted, consisting converted, consisting
of materials Rs. of previous process
72,000 and cost of Rs. 91,800,
conversion cost Rs. materials Rs. 12,000
45900 and conversion costs
Rs. 38,400
Units started during 16,000 18,000
the period

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 Process costing with beginning
and ending work in progress
• Example 3
Process X Process Y
Closing WIP 4,000 units ¾ 8,000 units ½
completed completed
Material cost added Rs. 192,000 Rs. 60,000
during the period
Conversion costs Rs. 225,000 Rs. 259,200
added during the
period

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 Process costing with beginning
and ending work in progress
• Calculation of number of units completed during
the year
Process X Process Y
Opening WIP 6,000 2,000
Units introduced during the period 16,000 18,000
Total input of the period 22,000 20,000
Less: Closing WIP (4,000) (8,000)
Completed production 18,000 12,000

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 Process costing with beginning
and ending work in progress
• Calculation of the cost per unit for process X
Cost Total cost Total equivalent units Cost per
element (Opening WIP unit
+ Current cost)
Materials (72,000+192,000) 18,000 + (4,000*100%) Rs. 12
264,000 22,000
Conversion (45,900+225,000) 18,000 + (4,000*75%) Rs. 12.90
cost 270,900 21,000
534,900 Rs. 24.90

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Process costing with beginning
and ending work in progress
• Calculation of value of closing WIP of process X
Cost element Total cost
Materials (4000 units *Rs. 12) 48,000
Conversion cost (3,000 units *Rs. 12.90) 38,700
86,700

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 Process costing with beginning
and ending work in progress
Process X account
Rs. Rs.

Opening WIP b/fwd 117,900 Completed units 448,200

transferred to process Y
Materials 192,000 Closing WIP c/fwd 86,700
Conversion cost 225,000
534,900 534,900
Opening WIP b/fwd 86,700

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 Process costing with beginning
and ending work in progress
• Calculation of the cost per unit for process Y
Cost Total cost Total equivalent units Cost per
element (Opening WIP unit
+ Current cost)
Previous (91,800+448,200) 12,000 + (8,000*100%) Rs. 27
process cost 540,000 20,000
Materials (12,000+60,000) 12,000 + (8,000*0%) Rs. 6
72,000 12,000
Conversion (38,400+259,200) 12,000 + (8,000*50%) Rs. 18.60
cost 297,600 16,000
909,600 Rs. 51.60

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Process costing with
beginning and ending
work in progress
• Calculation of value of closing WIP of process Y
Cost element Total cost
Previous process cost (8000 units *Rs. 27) 216,000
Materials -
Conversion cost (4,000 units *Rs. 18.60) 74,400
290,400

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 Process costing with beginning
and ending work in progress
Process Y account
Rs. Rs.

Opening WIP b/fwd 142,200 Completed units 619,200

transferred to FG
From process X 448,200
Materials 60,000 Closing WIP c/fwd 290,400
Conversion cost 259,200
909,600 909,600
Opening WIP b/fwd 290,400

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 Batch costing
• Batch costing is a form of specific order costing. Within
each batch are a number of identical units however, each
batch will be different.
• Each batch is a separately identifiable cost unit which is
given a batch number and costs can be identified against
each batch number.
• Unit cost of the batch calculated by dividing the total
batch cost by the number of units in the batch.
ACT 1201 MANAGEMENT ACCOUNTING 54