Glossary of Process costing

No Terms Meaning
1 Conversion cost Direct labor cost plus manufacturing overhead cost
2 Equivalent units The product of the number of partially completed units and their
percentage of completion with respect to a particular cost. Equivalent
units are the number of complete whole units that could be obtained
from the materials and effort contained in partially completed units
3 Equivalent units of The units transferred to the next department (or to finished goods)
production during the period plus the equivalent units in the department’s ending
(weighted-average work in process inventory
method)
4 FIFO method A process costing method in which equivalent units and unit costs
relate only to work done during the current period
5 Operation costing A hybrid costing system used when products have some common
characteristics and some individual characteristics
6 Process costing A costing method used when essentially homogeneous products are
produced on a continuous basis
7 Processing An organizational unit where work is performed on a product and
department where materials, labor, or overhead costs are added to the product
8 Weighted-average A process costing method that blends together units and costs from
method both the current and prior periods