PROCESS COSTING

SYSTEM
Process Costing

a product costing system used by companies that makes a

larger number of similar products or maintain a continuous
production flow.

3 main characteristics
 manufacturing costs are grouped by department or work center
 emphasizes a weekly or monthly time period
 uses several WIP Inventory Account
 DIFFERENCE BETWEEN JOB ORDER AND PROCESS
COSTING
PROCESS COSTING JOB ORDER COSTING

 homogenous units pass through a  unique jobs are worked on during a

series of similar processes time period

 costs are accumulated by  costs are accumulated by individual

processing department job

 unit costs by dividing the individual  unit cots are determined by dividing
department’s costs by equivalent the total costs on the job cost sheet
production by the number of unites on the job

 cost of production report provides  the job cost sheet provides the
the detail for the WIP account for detail for the WIP account.
each department
Methods of Costing
FIFO Method- there is an assumed flow of manufacturing
operations and as such it is considered that those units which
are first placed in process are presumed to be the first ones
completed and those that are first completed are the ones
transferred out.
o WIP, Beg in the department will require a separate computation for its
equivalent production
o Units started, completed and transferred will have its own computation
for equivalent production
Weighted Average Method- there is no assumed flow of
manufacturing operations. It involves the merging of the
departmental costs by elements
o The computation of equivalent production, the stage of completion of
the WIP, Beg is ignored and the total units completed and transferred
during the period is considered to have 100% completion.