Question

Describe (50 to 80 words) the process to add a costing unit to an accounting system.

Answer 1

Answer:

Process costing is used when there is bunch of production of similar products, where the cost with different units of output cannot be differentiated from each other.

A process costing system cost when a huge number of identical units are being produced. The assumption is that the cost of each unit is the same as any other unit, so that, there is no need to track information of different different unit level.

In other words, under the costing unit to an accounting system, cost is assemble over a fixed period of time, abstract, and then allot to all of the units produced during that period of time.

For example, in the industry oil refining, food production, and chemical processing is include under this type of production.

Process costing is the only logical towards to product cost in many industries. It is using the most of same journal entries in a job costing environment. In the costing unit in to accounting system, there are three types of process costing: Weighted average costs, Standard cost, First in first out costing.

In costing unit to accounting system, Process is:

• Direct materials : Direct materials which is easily identified with the unit of production. The cost of the raw material and element used to create a product. The direct material cost is one of the few variable cost which is involved in the production process. It is used in the inference from production process.
• Direct labor : Direct labor is considered to be a direct cost, which means that direct connect with revenue or other activity. In generally when a business provide a service to the direct labor is considered to be the labor of those people who provide a service directly to consumer.
• Overhead : Overhead includes all ongoing business related expenses. which is not including or related to direct labor or direct materials used in product or service. Overhead expense is fixed, that amount is same every time. Overhead cost is not directly associated with generating profit. For example, Overhead in cost accounting which is include indirect labor, indirect materials, and depreciation.

At last i can say that process costing is that direct material costs are added at the starting of the process, while all other cost like, direct labor and overhead are gradually added over the course of the production process.