In: Accounting
Answer:
What is Process costing:
Process costing is a kind of item/product costing which is utilized to learn and determine the cost of a product at specific process or phase of production . Product costing is suitable for the organizations that produce a persistent mass of indistinguishable units ,through a series of tasks or process.
Four steps in the process costing :
1)Analysis of physical flow of units :
The manufacturing plant is isolated into various pre-determined processes through which the crude material passes. The design is to determine the total cost for every unit/product simultaneously . Process and the cost per unit and equivalent an account is kept up for each process into which the material cost ,work cost , direct costs and overheads that are distributed and allotted are debited.
The direct materials are presented at discrete focuses especially in the first process, yet the conversion costs i.e., direct labor and manufacturing overheads are consistent is nature.
2)Calculation of equivalent units:
In each process ,there is will undoubtedly be a balance of work yet to be finished at any given point of time which is named as work - in - process.
The work - in- process comprises of the crude materials brought into the process and the conversion costs. Conversion costs incorporate the total of direct labor cost and the manufacturing overheads
Further ,it might be noticed that the output of one process turns into the crude materials for the following successive process until the last process where the output turns into the completed / finished products ready for sale.
3)Calculation of unit costs:
The calculation of equal units in step 2 assists with ascertaininng the quantity of units in the work-in-process.
Subsequent to ascertaining the quantity of equal units the quantity of finished units being moved to the following process can be known.
Further the total cost / expense of each process ,unit cost of equivalent units (work in process ) being held in the specific process and the unit cost of finished units being moved to next process can likewise be ascertained.
4)Analysis of total expenses:
The unit costs determined in step 3 assistance in ascertaining the total expense of work - in - process and the total expenses of finished units moved either to next process or to completed merchandise can be ascertained.