Process costing in an alternative method of cost accounting. Process costing is a basic method by which costs are accumulated by processes.
A system that accumulates all costs for the production of similar items in a given batch, lot or time frame and creates an average unit cost based on the volume or units produced. Costs are tracked only for the entire batch, and not pegged to individual units.
A costing system that is applied when goods or services are produced in a continuous flow.
Features of process costing
Process Costing Method is applicable where the output results from a sequence of continuous or repetitive operations or processes and products are identical and cannot be segregated. Process Costing enables the ascertainment of cost of the product at each process or stage of manufacture.
The following features may be identified with process costing:
1. The output consists of products which are homogenous.
2. Production is carried on in different stages having a continuous flow.
3. Production takes place continuously except in cases where the plant and machinery are shut down for maintenance etc. Output is uniform and all units are identical during each process. It would not be possible to trace the identity of any particular lot of output to any lot of input.
4. The input will pass through two or more processes before it takes the shape of the output. The output of each process becomes the input for the next process until the final product is obtained, with the last process giving the final product.
5. The output of a process may also be saleable in which case the process may generate some profit.
6. The input of a process (except the first) may be capable of being acquired from the outside sources.
7. The output of a process is transferred to the next process generally at cost to the process. It may also be transferred at market price to enable checking efficiency of operations... [continues]
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