29 July 2011
Process Costing is a tool applied in process industry where before raw material is get converted into final product and before that it has to undergo different process and during each process an intermediate product is generated. With the help of process costing, we can evaluate cost of intermediate products produced at the end of each process.
29 July 2011
In Cement Industry, main Raw Material is Limestone. When Lime stone is taken out from mines it is in raw and uncrushed form. So first you carry out cost of extracting the lime stone from mines. After mining you crush it. The second intermediate product would be crushed lime stone and you have to do process costing to know the cost of crushed lime stone. After Limestone is crushed, it is mixed with some additives and the mix is again processed and it gets converted (by a process) into Raw Meal. Again you have an intermediate product Raw Meal and you need to apply process costing to know the cost of raw meal. This raw meal is now further processed and it gets converted into Cement Clinker, another intermediate product. Finally you grind Cement clinker and add other additives like gypsum/Slag/Pozzolanic material(depends) and you get final product, i.e. cement. Thus at each stage you have to apply process costing to know the cost of intermediate product.
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