Table of Contents
Comparison of Unit Costing with Process Costing
The following are the differences between the Unit Costing and Process Costing.
Differences between job costing and process costing
The main points of difference between Job Costing and Process Costing are presented below.
Advantages of Process Costing
The following are the advantages of process costing.
1. The calculation of average cost is very easy since the homogeneous products are produced.
2. The cost is calculated periodically.
3. Less clerical efforts and costs are enough to calculate cost.
4. Effective control can be exercised on production very easily.
Disadvantages of Process Costing
The main disadvantages of process costing are briefly explained below.
1. The process costing system does not disclose the weaknesses and inefficiencies of any process. Hence, the accurate cost per unit cannot be calculated.
2. The emergence of joint products may present the problem of apportionment of joint costs.
3. The calculated cost per unit may be a misleading if the apportionment of joint costs is not properly done.
4. Process costing has all the weaknesses of historical costing since it is based on historical costs.
5. The degree of completion of work in progress is taken into account for the calculation of cost per unit. But, there is no standard scale or measurement to access the degree of completion of work in progress. Hence, mere guess work is followed which may lead to inaccurate calculation of cost per unit.
6. The process costing system does not consider the efforts of individual workers or supervisors.
7. The use of excessive materials and labour are not disclosed until the end of the period.
8. In the case of joint product, the calculation of cost per unit is very difficult.
9. There is lack of a precise and commonly accepted criterion for the allocation of joint costs among different types of products.
Difficulties in Process Costing System
The Cost Accountant faces the following difficulties while maintaining the records under process costing system.
1. The correct treatment of waste and scrap.
2. Accounting for normal loss, abnormal losses and/or abnormal gains in each process separately.
3. Computing the correct value of incomplete units i.e. work in progress at the end of the accounting period.
4. Accounting for joint products and by-products, which may emerge from each process.
5. Accounting for inter process profits.