Process Costing

2
A study on Process
Costing with
reference to
VOLANT TEXTILE
MILLS LTD.

3
INDEX
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 Studyon Volant Textile Mills
Ltd.
 Textile industry in India
 About the unit
 Company History
 Products
14
5 Processes involvedin
Manufacturing
 Spinning
 Weaving
 Dyeing & Printing
 Finishing
17
6 Process Accounts of VTML 21
7 Conclusion 23
8 Bibliography 24

4
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

5
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".
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.
Features
Homogenous
products
Continuous
process
Cost centers
Standardized
processes
Equivalent
productionunits

6
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.
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.

7
FrequentlyUsed 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.
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.

8
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.

9
Application of Process Costing
Cost Flow Chart
PROCESS
INDUSTRIES
Oil
refining
Chemical
processing
Textiles
RubberSteel
Shoes
Food
production

10
Process Account Format
Process I A/c
Particulars Units Rs. Particulars Units Rs.
To Direct Material XX XXX By Normal Loss A/c XX XXX
To Direct Wages XXX By Abnormal Loss
A/c
XX XXX
To Direct
Expenses
XXX By Process IIA/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

11
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.
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

12
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
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.

13
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 Shirting
2. Fibres & Acrylic Waste
3. Fabrics
4. Fabrics Lumps
5. Scrap
Registered Office address: Ansa Industrial Estate,Saki Vihar Road,Saki Naka,
Andheri (E),Mumbai 400072.

14
Processes involved in Manufacturing
Spinning
Weaving
Dyeing +Printing
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

15
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
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 wovenon 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 twosets 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.

16
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 yarnis 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.
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

17
Equipped with State-of-the -Art
dyeing machinery from Thies German, for Yarn and Beam dyeing capacity of 6 mt / day.
KNIT PROCESSING
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.

18
In the Books of Textile Mills Ltd.
Process Accounts
(Approx. Figures)
Dr. ProcessNo. 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
5000 1362500 5000 1362500
Dr. ProcessNo. 1 Stock A/c. Cr.
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
To Process 1
A/c.
3000 900000 By Normal Loss (
@ Rs.50 )
150 7500
To Wages 150000
To Expenses 54000 By Weight Loss 300 --
By Process 2 Stock
A/c. ( @ Rs.430 )
2550 1096500
3000 1104000 3000 1104000
Dr. Process No. 2 Stock A/c. Cr.

19
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
To Process 2
StockA/c.
1275 548250 By Scrap 255 12750
To Wages 35000 By Weight Loss 255 --
To Expenses 18550 By Process 3 Stock
A/c.
765 589050
1275 601800 1275 601800
Dr. Process No. 3 StockA/c. Cr.
To Process 3
A/c.
765 589050
To Costing
P & 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 1StockA/c. 30000
To Selling Expenses 40000 By Process 2 StockA/c. 25500
To Interest on Capital 10000 By Process 3 StockA/c. 22950
By Net Loss 24050
102500 102500

20
Conclusion
The researcher has observed the following points:
 Process costingis 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.
 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 scopeof 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 processesinvolve 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 controlon the quality
of yarn.

21
Bibliography
 en.wikipedia.org/wiki/Process_costing
 www.accountingtools.com
 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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