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Characteristics and Procedure of Process Costing System:

The characteristics of process costing system:

  1. A cost of production report is used to collect, summarize and compute total and unit costs.
  2. Production is accumulated and reported by departments.
  3. Costs are posted to departmental work in process accounts.
  4. Production in process at the end of a period is restated in terms of completed units.
  5. Total cost charged to a department is divided by total computed production of the department in order to determine a unit cost for a specific period.
  6. Costs 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.

The procedures of process costing are designed to:

  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 in process (WIP)

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.

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