Example of Process Cost Accounting

As a process costing example, ABC International produces purple widgets,

which require processing through multiple production departments. The first
department in the process is the casting department, where the widgets are
initially created. During the month of March, the casting department incurs
$50,000 of direct material costs and $120,000 of conversion costs (comprised of
direct labor and factory overhead). The department processes 10,000 widgets
during March, so this means that the per unit cost of the widgets passing through
the casting department during that time period is $5.00 for direct materials and
$12.00 for conversion costs. The widgets then move to the trimming department
for further work, and these per-unit costs will be carried along with the widgets
into that department, where additional costs will be added.