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Process Costing.pptx
1. Process Costing
• Process Costing – Process costing is a method of accounting used in
manufacturing to determine the cost per unit of production for mass-
produced goods.
• It tracks the cost of each production stage and assigns a portion of the
total costs to each unit produced, taking into account the number of
raw materials, direct labor, and overhead costs involved in each stage.
2. The Procedures of Process Costing
1. Accumulate materials, labor, and factory overhead costs by
departments
2. Determine a unit cost for each department
3. Transfer costs from one department to the next and to finished
goods.
4. Assign costs to the inventory of work still in the process
If Accurate units and inventory costs are to be established by process
costing procedures, costs of a period must be identified with units
produced in the same period
3. Characteristics of Process Costing
• A cost of Production report is used to collect, summarize and compute
total cost
• Production is accumulated and reported by departments
• Costs are posted to departmental work in process accounts
• Production in process at the end of the period is restated in terms of
completed units
• Total cost charged to a department is divided by the total computed
production of the department in order to determine a unit cost for a
specific period
4. Characteristics of Process Costing
• Cost of completed units of a department are transferred to the next
processing department in order to arrive at the total costs of the
finished products during a period. At the same time, costs are assigned
to units still in process.
5. Product Flow
• A product can flow in an organization in numerous ways. Three
product flow formats associated with process costing,
1. Sequential Product Flow
2. Parallel Product Flow
3. Selective Product Flow
6. Work in
Process
Blending Dep
• Materials
• Labour
• Factory
Overhead
Work in
Process
Testing
Department
• Labour
• Factory
Overhead
Work in
Process
Terminal
Department
• Labour
• Factory
Overhead
Finished Goods
Sequential
Product Flow
7. Work in Process
Cutting Dep
• Materials
• Labour
• Factory
Overhead
Work in Process
Planning and
Sanding Dep
• Labour
• Factory
Overhead
Work in Process
Assembly
Department
• Labour
• Factory
Overhead
Work in Process
Painting Dep
• Labour
• Factory
Overhead
Finished Goods
Parallel
Product Flow
Work in
Process
Melting Dep
Work in
Process
Casting Dep
8. Selective
Product Flow
Work in Process
Butchering Department
Work in Process
Packaging Department
Finished Department
Work in Process
Smoking Department
Work in Process
Grinding Department
9. The Cost of Production Report
1. Total and unit costs transferred to it from a preceding department
2. Materials, labor, and factory overhead added by the department
3. Unit costs added by the department
4. Total and unit costs accumulated at the end of operations in the
department
5. The cost at the beginning and ending work in process inventories
6. Cost transferred to a succeeding department or to a finished goods
storeroom