AA025 Chapter 8 : Process Costing

PROCESS COSTING system focuses on the process involved in mass-producing products that are very similar in nature.

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Which industry would more likely to use a PROCESS COSTING system?

• Travel & Tours Agencies

• Entertainment & Documentary Production

• Canned Food Manufacturing

• Business Consultation Company

In a PROCESS COSTING system, costs are tracked through a series of connected manufacturing processes or departments, rather than by individual jobs.

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Separate work in process inventory accounts is maintained for each processing department or manufacturing process in a PROCESS COSTING system.

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In a PROCESS COSTING system, materials, labour, and overhead costs are only added in the first production department.

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Equivalent units of production are used to determine the cost per unit of completed products.

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Equivalent units of production measure the work done during a period, expressed in fully completed units.

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The weighted-average method of computing equivalent units is the most widely used method in practice.

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There are no units in process at the beginning of the period, 1,500 units in process at the end of the period that are 40% complete, and 15,000 units transferred out during the period. Based on this information, there were 14,400 equivalent units of production during the period.

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The first step performed in preparing a Production Cost Report is computing the equivalent units of production.

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