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Processing Costing

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Processing Costing
February 2013

ACCT 102 Managerial Accounting

Oil Refinery: A Typical Example for the use of Process Costing

Objectives
☯To understand what is process costing
☯To understand the physical flow and basic entries in a process costing system
☯To be able to calculate the production cost able in a process costing system by using the the Weighted Average method

1

Comparison of Job-Order Costing and Process Costing
JobJob-order costing

The oil refining process starts with a fractional distillation column.

Typical Application of Process Costing
Process
Costing

Process costing

Job-Order
Job-order
Costing

Costs
Costs accumulated by the job. job. Costs
Costs accumulated by department or process. process. Work
Work in process has a jobjob-cost sheet for each job. job.

Work
Work in process has a production report for each batch of products. products. Chocolate Making (e.g. Hershey’s)

Many unique, high cost hi jobs. jobs. A few identical, low cost id products. products. Oil Refinery
Refinery

Units
Units continuously produced for inventory in automated process.

Paint manufacturer

Jobs
Jobs built to customer order. Typical process cost applications: http://www.hersheys.com/ads-and-videos/how-we-make-chocolate.aspx?video=raw-ingredients http://www.youtube.com/watch?v=rdTpA0luD2U

http://www.youtube.com/watch?v=jvYgXJgoLJ0&feature=related

http://painting.about.com/od/artsupplies/youtube/paint_factory.htm

Paper mill
3

Cheng Nam Sang

2

http://www.youtube.com/watch?v=7SdJtYkAzTw

4

1

February 2013

ACCT 102 Managerial Accounting

Job-order and Process Costing
Applications:

Types of Processes
Sequential:
Process 1

Process 2

Process 3

Process 2

Process 4

Finished
Product X

Process 3

Parallel:

1.
2.
3.
4.
5.
6.

Finished
Goods

Process 5

Finished
Product Y

Process 1

Process 1

Process 2

Qn: Find out
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