Process costing

Process costing is used when a company produces continuous flow of units that are indistinguishable from one another.

The system is used when masses of identical or similar units are produced. The five key steps in the process costing system are: summarize the flow of physical units of output; computer output in terms of equivalent units; compute equivalent unit costs; summarize total cost to accounts for; and assign total costs to units completed and to units in closing work in progress.

Equivalent units is a derived amount of output units that takes the quantity of each input in units completed or in a work in progress and converts it into the amount of completed output units that could be made without quantity of input.

The standard costing method simplifies process costing because standard cost serve as a cost per equivalent unit when assigning costs to units completed and to units in closing work in progress.

Process costing is an approach to costing that is used when all products identical the total cost of all products is determined by adding up all the direct and indirect costs used to produce the products and then dividing by the number of products produced to get the cost per unit.

An equivalent unit of production is calculated by multiplying the number of partially completed units by the percentage of completion. This percentage of completion is the proportion of of the total resource needed to produce one complete unit which has already been consumed in the partially completed units. Roughly speaking, the equivalent units either number of complete units that could have been obtained from the materials and efforts that went into the partially completed units.

As the transformation process unfolds, materials may be incorporated into the product at a different pace than the actual work of transformation. For instance when you bake a cake, you may first put all the ingredients in the bowl and then start working on it. Because of this difference in pace, process costing typically differentiates between prime and conversion costs.

Conversion costs are the resources consumed to transform raw materials (prime costs) into products at each process stage. They are all the manufacturing costs other than direct material costs, so typically direct labor costs and all overhead costs.

Process costing applies in industries where large quantities of homogenous products are processed. Since each unit is virtually indistinguishable, the costs of production can be spread evenly among all units produced.

Process costing systems separate costs into cost categories according to the timing of when costs are introduced to the process. This separation in phase is where resources are consumed is necessary to value the work in process inventory.

Last in first out is in inventory method that is humans the company sells or uses up the stock acquired most recently first.

Backflush Costing is a costing system that applies costs to products only when the production is complete.

Process costing is a costing system used by companies that make homogenous products or services.

The weighted average method is a method used to prepare a prediction revolt in process costing. It averages the cost of the units beginning inventory with the cost of the units started during the period. Work in process inventory is the cost of the units that are in process (incomplete) at any given point in time.

Process costing is a method of allocating costs to products by averaging costs over a large number of nearly identical products.

Process costing is a costing system that computes the cost of each manufacturing process used to make a product. The cost of a product or service is obtained by using borad averages to assign costs to masses of similar units.


Cost flow.

The production report Gathers all the data and provides information about the number of units and manufacturing costs that flow through a production process during an accounting period.More specifically, it brings together the information produced by four steps: reconciling the number of physical units; converting physical units into equivalent units; calculating the cost per equivalent unit; reconcile the total cost of work in process inventory.



The weighted average process costing method calculated equivalent unit cost of the work done to date regardless of the period in which it was done, and assigned this cost to equivalent units completed and transferred out of the process and to equivalent units in closing work in progress stock. In contrast to the weighted average method, the first in, first out process costing method assigns a cost of the previous periods equivalent units in opening work in progress stock to the first units completed and transferred out of the process, and assigns the cost of equivalent units worked on during the current period first to complete beginning stock, then to start and complete new units, and finally to units in closing work in progress stock. This means that work done on opening stock before the current period is kept separate from work done in the current period.

Equivalent units is a measure used to convert partially completed units into the equivalent of a full unit.

Equivalent units is the number of completed (whole) units that would have been produced from the inputs applied.

The first in first out method is used to prepare the production report in process costing. It assumes that the unit in process at the beginning at the beginning of the period have completed first, before the units started during the current. It assumes that the company’s sales are uses up first is a stock required earliest.

Equivalent units is the number of completed (whole) units that would have been produced from the inputs applied.