Question

Process Order Costing: Define Process order costing. Trace the flow of costs through a process order costing system. Explain the concept and calculation of equivalent units of production. Discuss the production report as a decision making tool.

Answer 1

Process costing is a term utilized as a part of cost bookkeeping to depict one technique for gathering and appointing manufacturing cost to the units produced. Processing cost is utilized when about identical units are produced. (Job costing or job order costing is a strategy utilized when the units made change altogether from each other.)

To delineate process costing, how about we expect that an item requires a few processes each of which happens in a different department. The expenses of Department One for the long stretch of June add up to $150,000 of direct materials and $225,000 of conversion costs (direct labor and manufacturing overhead). In the event that the quantity of units prepared in June in Department One is what might as well be called 100,000 units, the per unit cost of the items handled in Department One in June will be $1.50 for direct materials and $2.25 for conversion costs. These expenses will then be exchanged to Department Two and its handling expenses will be added to the cost of the units.

Equivalent unit of production

An equal unit of production means that the measure of work done by manufacturers who have partially completed units by the end of accounting period. Fundamentally the completely finished units and the partially completed units are communicated as far as completely finished units.

Cost calculation

1. Summarize the physical stream of units and register the comparable units for coordinate materials, coordinate work, and overhead.

2. Summarize the expenses to be represented (isolated into coordinate materials, coordinate work, and overhead).

3. Calculate the cost for each proportional unit.

How production report helps in decision making

• pricing decisions of goods produced
• Company performance can be judged properly
• Sell or process further goods
• Financial reporting gets help