Question

why is adjustment of stocks necessary in case of interprocess profit?​

Answer 1

Explanation:

Meaning of Process Costing-Inter Process Profits:

In process costing, the usual practice is to transfer the output of one process to another and finally to finished stock at cost price. In this method of transfer, process accounts will not reveal any profit or loss. But sometimes, the transfer is made at transfer price or market price.

This method is adopted in order to measure the efficiency or inefficiency of individual’s process. When market price cannot be ascertained, certain percentage of profit margin is added to the cost of processing in order to arrive at the transfer price. Consequently, each process account reveals a profit and this profit is known as ‘inter process profit’.