process costing

PROCESS COSTING

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A study on Process Costing

with reference to

VOLANT TEXTILE MILLS

LTD.

2

INDEX

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Sr. No.

TOPIC Page No.

1 Introduction Meaning Definition Features Advantages/Limitations Terminologies

8

2 Application of Process Costing 12

3 Format of Process account 13

4 Case Study on Volant Textile Mills Ltd.

Textile industry in India About the unit Company History Products

14

5 Processes involved in Manufacturing

Spinning Weaving Dyeing & Printing Finishing

17

6 Process Accounts of VTML 21

7 Conclusion 23

8 Bibliography 24

Introduction:

Process Costing

Meaning

Process costing is an accounting methodology that traces and accumulates direct

costs, and allocates indirect costs of a manufacturing process. Costs are assigned to

products, usually in a large batch, which might include an entire month's production.

Eventually, costs have to be allocated to individual units of product. It assigns average

costs to each unit.

Process costing is a method of assigning costs to units of production in companies

producing large quantities of homogeneous products.

Process costing is suitable for industries producing homogeneous products and where

production is a continuous flow. A process can be referred to as the sub-unit of an

organization specifically defined for cost collection purpose.

Definition

CIMA defines process costing as "The costing method applicable where goods or

services result from a sequence of continuous or repetitive operations or processes.

Costs are averaged over the units produced during the period".

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Advantages of process costing:

1. Costs are be computed periodically at the end of a particular period

2. It is simple and involves less clerical work that job costing

3. It is easy to allocate the expenses to processes in order to have accurate costs.

4. Use of standard costing systems in very effective in process costing situations.

5. Process costing helps in preparation of tender, quotations

6. Since cost data is available for each process, operation and department, good

managerial control is possible.

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Feat

ures

Homogenous products

Continuous process

Cost centers

Standardized processes

Equivalent production units

Limitations:

1. Cost obtained at each process is only historical cost and are not very useful for

effective control.

2. Process costing is based on average cost method, which is not that suitable for

performance analysis, evaluation and control.

3. Work-in-progress is generally done on estimated basis which leads to inaccuracy in

total cost calculations.

4. The computation of average cost is more difficult in those cases where more than

one type of products is manufactured and a division of the cost element is necessary.

5. Where different products arise in the same process and common costs are prorated

to various costs units. Such individual products costs may be taken as only

approximation and hence not reliable.

Frequently Used Terms in Process Costing :

Normal loss

This is the term used to describe normal expected wastage under usual operating

conditions. This may be due to reasons such as evaporation, testing or rejects.

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Abnormal loss

This is when a loss occurs over and above the normal expected loss. This may due to

reasons such as faulty machinery or errors by labourers.

Abnormal gain

This occurs when the actual loss is lower than the normal loss. This could, for

example, be due to greater efficiency from newly-purchased machinery.

Work in progress (WIP)

This is the term used to describe units that are not yet complete at the end of the

period. Opening WIP is the number of incomplete units at the start of a process and

closing WIP is the number at the end of the process.

Scrap value

Sometimes the outcome of a loss can be sold for a small value. For example, in the

production of screws there may be a loss such as metal wastage. This may be sold to

a scrap merchant fora fee.

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Application of Process Costing

Cost Flow Chart

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PROCESS INDUSTRIES

Oil refinin

gChemical

processing

Textiles

RubberSteel

Shoes

Food production

Process Account Format

Particular

s

Uni

ts

Rs. Particulars Uni

ts

Rs

.To Direct Material XX XX

X

By Normal Loss A/c XX XXX

To Direct Wages XXX By Abnormal Loss

A/c

XX XXX

To Direct

Expenses

XXX By Process II A/c

(output transferred.

to next process)

XX XXX

To Production

Overheads

XXX By Closing Stock A/c XX XXX

To Abnormal

Gains

XX XXX

XX XXX XX XXX

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Process I A/c

Case Study on Volant Textile Mills Ltd.

Textiles: The word 'textile' is from Latin, from the adjective textilis, meaning

'woven', from textus, the past participle of the verb texere, 'to weave'.

Textile industry in India

The Textile industry in India traditionally, after agriculture, is the only industry that has

generated huge employment for both skilled and unskilled labour in textiles. The textile

industry continues to be the second largest employment generating sector in India. It

offers direct employment to over 35 million in the country. In 2010, there were 2,500

textile weaving factories and 4,135 textile finishing factories in all of India.

About the unit

Volant Group is promoted by the Somani family, which has a textile manufacturing

background since the year 1932 in Mumbai, India.

Volant is a multi-divisional textile manufacturing company having its facilities located at

Solapur. The scope of its business includes yarn dyeing, weaving, woven fabric

processing, knit processing, finishing and designing with state-of-the-art infrastructure.

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Volant has also taken a 3 years management contract an open end (OE) spinning

plant for cotton yarn there by having better control on the quality of yarn.

Date of Establishment: 1993

Market Capital: 49.4703 (Rs. in Millions)

Management Details: Chairperson - Rajesh Somani

MD - Anantvikram Somani

Business Operation: Textile - Spinning

Company History

Volant Textile Mills Ltd. incorporated in 1994, is a 100% Export Oriented Unit

manufacturing cotton and bleached grey fabrics. The weaving unit comprises of- 36

nos. Sulzer machines - Model PU 130 ES 120 E10 D1 having 130' reed space. 5 nos

of these Sulzer machines are with batching motion, 6 nos. Sulzer machines – Model

PU 130 having 130” reed space with Dobby, 10 nos. Somet Rapier SM93 Model

Looms having 90” reed space with Jacquard 1344 hooks, High Speed wrapping

machine from Benninger India Ltd. Twin sow-box sizing machine with synchro-four

system from Amba Machine Works Pvt. Ltd.

Weave - direct humidification plant from LTG, Germany

Inspections, checking, roll & bale packaging equipments

Generator plant for full capacity requirement

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It has exported to all major markets of the world like Australia, Bangladesh, EEC,

Hong Kong, Israel, Nigeria, Russia, Taiwan, USA. The company follows the American

10 point grey inspection

All its fabrics are of closed selvedge and can be exported in bales or rolls The

Weaving unit comprises of Sulzer machines - Model PU 130 ES 120 E 10 D1 having

130' and 153' reed space.

In 2008, the promoters have made payment to SASF for buy back of 7,50,000 Equity

shares at par, as per terms of the negotiated settlement the Company had entered into

with SASF on September 27, 2006.

The Company added 6 Sulzer weaving machines with Dobby and 10 Jaquard weaving

machines, commercial production of which started on October 09, 2008. The addition

of machines was with reference to proposed Draft Rehabilitation scheme which has

been submitted to the Operating Agency for bringing about Viability for the Company.

Products:

1. Fancy Shirting2. Fibres & Acrylic Waste3. Fabrics4. Fabrics Lumps5. Scrap

Registered Office address: Ansa Industrial Estate,Saki Vihar Road,Saki Naka,

Andheri (E),Mumbai 400072.

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Processes involved in Manufacturing

Spinning

Weaving

Dyeing +Printing

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Finishing

1. Spinning

Spinning is a process of making or converting fibre materials into yarns. Since few centuries ago, spinning have been known as a process of converting raw materials (fibre) such as cotton and wool into yarns for making textile fabric or products.

Fibres cannot be used to make clothes in their raw form. For this purpose, they must be converted into yarns. The process used for yarn formation is spinning.

The raw fibre arrives at a spinning mill as compressed mass which goes through the processes of blending, opening and cleaning. Blending is done to obtain uniformity of fibre quality. Opening is done to loosen the hard lumps of fibre and disentangle them. Cleaning is required to remove the trash such as dirt, leaves, burrs and any remaining seeds. The combing process is identified with better quality because long staple yarn produces stronger, smoother and more serviceable fabrics.

Drawing pulls the staple lengthwise over each other. As a result longer and thinner slivers are produced. After several stages of drawing out, the sliver is passed to the spindles where it is given its first twist and is then wound on bobbins. 'Roving' is the final product of the several drawing-out operations. It is the preparatory stage for the final insertion of twist. Till now, enough twist is given for holding the fibres together but it has no tensile strength. It can break apart easily with a slight pull. The roving, on bobbins, is placed in the spinning frame, where it passes through several sets of rollers running at high speed and finally the 'Yarn' is produced of the sizes desired.

2. Weaving

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Weaving is a method of fabric production in which two distinct sets of yarns or threads are interlaced at right angles to form a fabric or cloth.

Cloth is usually woven on a loom, a device that holds the warp threads in place while filling threads are woven through them. A fabric band which meets this definition of cloth (warp threads with a weft thread winding between) can also be made using other methods, including tablet weaving, back-strap, or other techniques without looms.[3]

The way the warp and filling threads interlace with each other is called the weave. The majority of woven products are created with one of three basic weaves: plain weave, satin weave, or twill. Woven cloth can be plain (in one colour or a simple pattern), or can be woven in decorative or artistic designs.

In order to interlace the warp and weft yarn, there are three operations

which often called primary motions are necessary:

Shedding- The process of separating the warp yarn into two layers by

raising the harness to form an open area between two sets of warps and

known as shed.

Picking- The process of inserting the filling yarn through the shed by

the means of the shuttleless while the shed is opening.

Beating- The process of pushing the filling yarn into the already woven fabric

at a point known as the fell and done by the reed.

3. Dyeing & Printing

Dyeing is the process of adding colour to textile products like fibres, yarns, and fabrics. Dyeing is normally done in a special solution containing dyes and particular chemical material. After dyeing, dye molecules have uncut chemical bond with fibre molecules. The temperature and time controlling are two key factors in dyeing.

The common dyeing process of cotton yarn with reactive dyes at package form is as follows:

1. The raw yarn is wound on a spring tube to achieve a package suitable for dye penetration.

2. These softened packages are loaded on a dyeing carrier's spindle one on another.

3. The packages are pressed up to a desired height to achieve suitable density of packing.

4. The carrier is loaded on the dyeing machine and the yarn is dyed.5. After dyeing, the packages are unloaded from the carrier into a trolley.6. Now the trolley is taken to hydro extractor where water is removed.7. The packages are hydro extracted to remove the maximum amount of

water leaving the desired colour into raw yarn.

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8. The packages are then dried to achieve the final dyed package.

Textile printing is the process of applying colour to fabric in definite patterns or designs. In properly printed fabrics the colour is bonded with the fibre, so as to resist washing and friction. Textile printing is related to dyeing but in dyeing properly the whole fabric is uniformly covered with one colour, whereas in printing one or more colours are applied to it in certain parts only, and in sharply defined patterns.In printing, wooden blocks, stencils, engraved plates, rollers, or silkscreens can be used to place colours on the fabric. Colorants used in printing contain dyes thickened to prevent the colour from spreading by capillary attraction beyond the limits of the pattern or design.

4. Finishing

In textile manufacturing, Finishing refers to the processes that convert the woven or knitted cloth into a usable material and more specifically to any process performed after dyeing the yarn or fabric to improve the look, performance, or "hand" (feel) of the finished textile or clothing.

Some finishing techniques such as bleaching and dyeing are applied to yarn before it is woven while others are applied to the grey cloth directly after it is woven or knitted. Some finishing techniques, such as fulling, have been in use with hand-weaving for centuries; others, such as mercerisation, are by-products of the Industrial Revolution.

YARN DYEING

Equipped with State-of-the -Art dyeing machinery from Thies German, for Yarn and Beam dyeing capacity of 6 mt / day.

KNIT PROCESSING

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The Knit Processing capacity is 12 mt / day with finest machines. We are equipped with HT Fabric Dying machines from Sclavos, Greece. Relaxed Dryer from Santex, Switzerland. Baloon Padder from Bianco, Italy and a Compacter from Tubetex, USA

FABRIC PROCESSING

Processing capacity of about 40,000 meters per day. The machines include Jigger Dyeing, Monforts Stenters (one having Stork coating attachment), Muzzi Sanfor, Hansa Calender and Teesta Packaging, using leading European technology.

In the Books of Textile Mills Ltd.

Process Accounts

(Approx. Figures)Dr. Process No. 1 A/c. Cr.Particulars Unit Rs. Particulars Units Rs.To Material @ Rs.1000

5000 5000000 By Normal Loss (sale of Scrap)

250 12500

To Wages 200000 By Weight Loss 250 --To Expenses 162500 By Process 1 Stock

A/c. (@ 300 per ton)

4500 1350000

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5000 1362500 5000 1362500

Dr. Process No. 1 Stock A/c. Cr.Particulars Unit Rs. Particulars Units Rs.

To Process 1 A/c.

4500 1350000 By Bank ( @ 320 )

1500 480000

To Costing Profit & Loss A/c.

30000 By Process No.2 A/c.

3000 900000

4500 1380000 4500 1380000

Dr. Process No. 2 A/c. Cr.Particulars Unit Rs. Particulars Units Rs.

To Process 1 A/c.

3000 900000 By Normal Loss ( @ Rs.50 )

150 7500

To Wages 150000To Expenses 54000 By Weight Loss 300 --

By Process 2 Stock A/c. ( @ Rs.430 )

2550 1096500

3000 1104000 3000 1104000


To Process 2 A/c.

2550 1096500 By Bank

To Costing P & L A/c.

25500 ( sale @ 450 ) 1275 573750

162500 By Process 3 A/c. 1275 548250

2550 1222000 2550 1222000

Dr. Process No. 3 A/c. Cr.Particulars Unit Rs. Particulars Units Rs.

To Process 2 1275 548250 By Scrap 255 12750

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Stock A/c.To Wages 35000 By Weight Loss 255 --To Expenses 18550 By Process 3 Stock

A/c.765 589050

1275 601800 1275 601800


To Process 3 A/c.

765 589050

To CostingP & L A/c.

22950 By Bank ( sale @ 800 )

765 612000

765 612000 765 612000

Dr. Costing Profit & Loss A/c. Cr.Particulars Rs. Particulars Rs.

To Management Expenses 52500 By Process 1Stock A/c. 30000To Selling Expenses 40000 By Process 2 Stock A/c. 25500To Interest on Capital 10000 By Process 3 Stock A/c. 22950

By Net Loss 24050102500 102500

Conclusion

The researcher has observed the following points:

Process costing is used in situations where homogeneous products or

services are produced on a continuous basis.

To compute unit costs in a department, the department's output in terms of

equivalent units must be determined.

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Volant Group is promoted by the Somani family, which has a textile

manufacturing background since the year 1932 in Mumbai, India.

It has a multi divisional textile manufacturing company having its facilities

located at Solapur.

The scope of its business includes yarn dyeing, weaving, woven fabric

processing, knit processing, finishing and designing with state-of-the-art

infrastructure.

This company is operational from the year 1993.

Raw materials used include cotton, silk, wool, flax, polyester, dyes,

chemicals and auxiliaries.

The processes involve spinning, weaving, dyeing, printing and finishing.

Volant has also taken a 3 years management contract on an open end

spinning plant for cotton yarn there by having better control on the quality

of yarn.

Bibliography

en.wikipedia.org/wiki/Process_costing

www.accountingtools.com

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http://www.volant-textile.com/

http://textilelearner.blogspot.in/2013/01/textile

http://info.shine.com/company/volant-textile-mills

http://money.rediff.com/companies/Volant-Textile-Mills

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process costing

Economy & Finance