PROCESS COSTING

A process costing system is a method typically used within certain sectors of the manufacturing industry to determine the total production cost for each unit of product. It accumulates cost from each process or department and allocates them to the individual products produced.

A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. Examples of companies that use process costing include Chevron Corporation (petroleum products), the Wrigley Company (chewing gum), and Pittsburgh Paints (paint).

Process costing is used most often when manufacturing a product in batches. Each department or production process or batch process tracks its direct material and direct labor costs as well as the number of units in production.

There are three different kinds of process costing: weighted average costs, standard costs, and First-in First-out (FIFO). There is no Last-in, Last-out (LIFO) method of process costing, as the basic principle of process costing is that the first unit produced is the first unit used.

How are manufacturing costs treated in process costing? The manufacturing costs always follow the physical movement of the product. When units are moved from one processing department to the next, the cost associated with those units must also be moved from one WIP account to the next.

Process Costing Definition

Process Costing

Process Costing: Definition & Examples

Steps in Process Costing