Question

What are two examples of actual manufacturing companies using process costing? Provide a detailed description of their respective process costing applications.

Answer 1

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Two manufacturing company that uses process costing are -

a)Coca cola

b)wrigley

a)Coca cola

The Coca cola company is one of the world’s largest producers of nonalcoholic beverages. According to the company, more than 11,000 of its soft drinks are consumed every second of every day.

In the first stage of production, coca cola mixes direct materials—water, refined sugar, and secret ingredients—to make the liquid for its beverages. The second stage includes filling cleaned and sanitized bottles before placing a cap on each bottle. In the third stage, filled bottles are inspected, labeled, and packaged.

Work in process begins with the first stage of production (mixing and blending), continues with the second stage (bottling), and ends with the third stage (inspecting, labeling, and packaging). When products have gone through all three stages of production, they are shipped to a warehouse, and the costs are entered into finished goods inventory. Once products are delivered to retail stores, product costs are transferred from finished goods inventory to cost of goods sold.

b)Wrigley

The wrigley has 14 factories located in various parts of the world, including North America, Europe, Africa, India, and the Asia/Pacific region. The gum produced by these factories is sold in 150 countries. According to wrigley , 50 percent of Americans chew gum, and on average, each person consumes 190 sticks per year. The number drops to 130 sticks per person in the United Kingdom and to 100 sticks per person in Taiwan.

The production process at wrigley involves six sequential stages:

1. Melting. The gum base, which comes in small round balls, is melted and purified.
2. Mixing. The melted base is poured into a mixer, to which sweeteners and flavors are added.
3. Rolling. A large “loaf” of gum is sent through a series of rollers, thereby reducing thickness to the desired size.
4. Scoring. The gum is cut into the shape of sticks or pellets.
5. Conditioning. The gum is cooled and “conditioned” to ensure the right consistency before being packaged.
6. Packaging. The gum is packaged and made ready for shipping.

Because wrigley produces identical units of product in batches employing a consistent process, it likely uses a process costing system. With such a system, wrigley would need a separate work-in-process inventory account to track costs for each stage of the production process.