There are a number of industries which use a raw materials which has to pass through several processes before the final product to produce.The raw materials are processed at every stage and the end product of one process becomes the raw material for the next process.For example in oil making process the seeds are crushed to get crude oil which is then purified and then refined.
In all such industries cost accounts are maintained so as to obtain details for each and every stage production.In all such industries production goes on without interruption and wastage and by products may arise at particular stage in the processes.Unless these are properly accounted for the exact cost of a process may not be obtained.Hence the need to maintain accounts for each process separately.
Sometimes decision has to be taken whether the raw material is to be brought from outside market or whether to manufacturing in the plant itself. If the market price is cheaper than the cost of manufacturing of a particular process, then it will be profitable to purchase from outside itself and utilize it in the next process.
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9 Comments. Leave new
I think you could have elaborated more on this topic like you could have added some advantages and disadvantages of process costing, its importance in company. Hope you will do it in your next article.
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