Question

In: Accounting

How is process costing for a single manufacturing department different from a manufacturing company with multiple...

How is process costing for a single manufacturing department different from a manufacturing company with multiple departments?

Solutions

Expert Solution

A single manufacturing department in process costing will have following cost incurred during production

· Direct material

· Direct labor

· Manufacturing overheads ( Direct labor and manufacturing overhead is referred as conversion cost)

In multiple department process costing subsequent departments will have transferred –in cost in addition to above cost. Direct material cost may not be there in subsequent department depending on item produced. In multiple department process costing the output of first department becomes the input for next department. Cost per equivalent unit is calculated for each component of cost separately depending on degree of completion. The transferred-in units from previous department are always 100% complete for Closing WIP since it is introduced in beginning of process. But in case of single manufacturing department Closing WIP percentage completion can vary depending when material is added in process.


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