Which of the following is a characteristic of the process costing method?
A process costing system accumulates the costs of a production process and assigns them to the products that the business outputs. A production report has to be made under the process costing system. Show
Process costing is applied to determine the cost of production in industries where products pass through different phases of production before completion. Under process costing, there is a finished product at each stage. This becomes the raw material of the subsequent stage until the final stage of completion. Process costing is generally used in industries that deal with chemicals, distilled products, canned products, food products, oil refineries, edible oils, soap, paper, textiles, and others. Process Costing: ExplanationProcess costing refers to a type of costing procedure commonly adopted by factories. In process costing, there is continuous or mass production and ongoing costs, which are accumulated regularly. The following five conditions are favorable for the use of process costing:
Characteristics of Process CostingThe main characteristics of process costing are:
General Principles of Process CostingThe following are the general principles of process costing:
Features of Process CostingThe main features of process costing include:
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Use of Process CostingIndustries that may benefit from the use of process costing are: (1) Those producing a single product: These industries are those which are engaged in producing electric power, gas, water, steam, cement, rubber, paper, etc. (2) Those producing a variety of products: These industries use the same production facilities. Such industries include foundries, laundries, and flour mills. (3) Those producing a variety of products but using separate facilities: Instead of using the same production facilities, such industries may be known as extractive (e.g., mining). Process Costing ProcedureUnder process costing, the procedure used to manufacture a product is divided into well-defined processes. A separate account is opened for each process to which all incurred costs are charged. The total number of units produced during a given period is calculated. By dividing the total cost of a process by the total number of units produced, the cost per unit can be obtained. The finished material of one process constitutes the raw material of the next. Therefore, as the finished material is transferred to the next process, the cost of each process is also transferred, until it ends in the finished stock account. Calculating Unit Cost Under Process CostingCalculating the unit cost for any work performed during a period is a key part of a production report. A student’s first thought is that this is easy—just divide the total cost by the number of units produced. However, the presence of work-in-process inventories causes problems. You cannot calculate the total output of the period by just taking the sum of completed units and work in process (ending inventory) because units in the work-in-process inventory are not 100% complete. This problem is handled through the concept of equivalent units of production. The process costing procedure is explained in more detail in the next example. ExampleA product passes through three processes: Process A, Process B, and Process C. 1,000 tons of the commodity were produced at the following costs: Required: Assume that there was no work-in-progress (i.e., not at the beginning or at the end). Show the process costs for each process and the total cost of the finished product. What are characteristics of process costing?The features of process costing employed in industries are:
(1) Production is continuous, in a series of stages called processes. (2) Each process is deemed as a cost centre and costs are accumulated for each process separately along with output, finished and in progress. (3) Products and processes are standardised.
Which of the following is characteristic of process cost accounting system?Option D is the correct answer
Process cost accounting system is mainly used by manufacturing organizations and therefore, as part of ongoing processes, stock of work in process is only partially completed at the start or end of an accounting period.
Which of the following is not characteristic of process costing?Answer and Explanation: The correct answer is option b. The system accumulates costs per job. A process cost system is a cost accounting system that is used by the company in ascertaining the cost of producing a product at a particular process or stage of manufacturing.
What is process costing in costing methods?A process costing system is a method typically used within certain sectors of the manufacturing industry to determine the total production cost for each unit of product. It accumulates cost from each process or department and allocates them to the individual products produced.
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