Question

Describe the six steps of process costing. What is the objective to be achieved by applying the six steps?

Answer 1

Steps in process costing-

1)Find the equivalent unit of production for any units begun in a previous period but completed in the current period. To do this, determine how much work on the units was completed in the current accounting period and multiply that percentage by the number of units.
2)Determine the equivalent units of production for units that are started, but not completed, during the accounting period.
3)Calculate how many units were both started and completed during the accounting period.
4)Sum beginning equivalent units, ending equivalent units and fully completed units to calculate total equivalent units completed.
5)Calculate product costs incurred during the accounting period. Generally accepted accounting principles stipulate that product cost is the sum of direct labor, direct materials and overhead manufacturing expense incurred. Direct labor is the cost of employing the workers who create the product, and direct materials are the raw materials used to create the goods. Manufacturing overhead is all other factory costs -- like rent, depreciation, utilities and supervisor salaries -- not accounted for in direct materials.

6)Divide product costs by the total equivalent units of production for the period to find cost per unit

The objective to be achieved by applying these steps are-

Process costing is a way of identifying and assigning the costs of manufacturing products. By dividing costs incurred by units produced, process costing allows companies to determine a cost per unit. To find cost per unit, the business must first calculate the total equivalent units produced during the period and all relevant product costs incurred.