Process Costing Is A Method Of Assigning Production Costs Essay examples

996 Words Sep 25th, 2016 4 Pages
Process costing is a method of assigning production costs to units of output. Process costing is typically used by companies that mass produce nearly identical products where the cost of each product produced is assumed to be the same as the cost of every other product. “Under this concept, costs are accumulated over a fixed period of time, summarized, and then allocated to all of the units produced during that period of time on a consistent basis” (Process Costing, 2016). This system is most commonly used in industries such as food and drink for example, cereal manufacturers or soda bottling companies or in the construction industry such as lumber or brick manufacturers where each product is identical or similar. It is also mostly used where production of a product passes through multiple cost centers, then costs are assigned to a cost center rather than to a particular job. A process costing system is then put in place to calculate the costs for each cost center or department. There are five steps to process costing. Step one is to analyze inventory flow. This will determine beginning inventory, how much was started and completed during the period, and how much is left as work in process at the end of the period. Step two is to convert in-process inventory to equivalent units. Step three is to compute all applicable costs, which includes the total direct and indirect costs incurred by the production process that need to be assigned to the units completed and the units…

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