Characteristics and Procedure of Process Costing System:
The characteristics of process costing system:
- A cost of production report is used to collect, summarize and compute total and unit costs.
- Production is accumulated and reported by departments.
- Costs are posted to departmental work in process accounts.
- Production in process at the end of a period is restated in terms of completed units.
- 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.
- 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:
- Accumulate materials, labor, and factory overhead costs by departments.
- Determine a unit cost for each department.
- Transfer costs from one department to the next and to finished goods.
- 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.
You may also be interested in other useful articles from “process costing system” chapter:
- Definition and explanation of process costing system
- Characteristics and Procedures of Process Costing System
- Costing By Departments
- Product Flow
- Procedure for Materials, Labor and Factory Overhead Costs in a Process Costing System
- Cost of Production Report (CPR)
- General Questions and Answers About Process Costing
- Exercises and Problems
- Process Costing System – Case Study