Question

In process costing system,

1. Briefly discuss the features of process costing system?

2. Idebtift 2 specific Australian companies that process costunf system is suitable for and expalin why?

3. Discuss two potential uses of the cost information for decision making to the managers in each of the organizations selected in question 2 above.

Give detail answer.

Answer 1

1. Features of process costing system-

a) The finished product is completed after two or more processes.

b) Each process is distinct and is pre-determined however the finished goods of the previous process become the raw material for the subsequent process.

c) In the process costing expenses are charged to operations (processes) and the average cost per unit produced can be calculated easily in each process.

2. specific Australian companies for which process costing system is suitable-

i) BHP Mining company and ii) Fortescue Metals Group Ltd. are two companies for which process costing system is suitable because these companies are engaged in Metals and Mining where production is continuously identical and products are standardised in large scale.

3. Two potential uses of the cost information for decision making to the managers are-

i) The cost of production at every stage helps management to take decision in respect of make or buy the required commodities for the company engaged in metals and mining like BMC and Fortescue Metals.

ii) The output after each stage of process can be sold which helps the management to know about the profit or loss at every process of both companies, by preparing the Processes Account as well as they can decide at which stage, product should be sold to earn more profit.

iii) Information about normal wastage and abnormal wastage of both companies, can help management to make controlling of wastages by Process Costing Account as losses can be easily calculated under this costing system.

iv) While producing iron ore, caoutchouc is also obtained which is termed as bye-product and the management can know the actual cost of main product, with cost of the bye-product is ascertained by process costing.

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