Process Costing

Process Costing

1. They're similarities and differences with Job Order

   • Similarities
     • 1. Both systems have the same basic purposes
     • 3. The flow of costs through the manufacturing accounts is basically the same in both systems.
     • 2. Both systems use the same basic manufacturing accounts
   • Differences
     • 3. Process costing systems compute unit costs by department.
     • 2. Under process costing, it makes no sense to try to identify materials, labor, and overhead costs with a particular customer order
     • 1. Process costing is used when a company produces a continuous flow of units that are indistinguishable from one another.

2. Processing Departments

   • A processing departmentis an organizational unit where work is performed on a prod-uct and where materials, labor, or overhead costs are added to the product.

3. The Flow of Materials, Labor, and Overhead Costs

   • In a process costing system, instead of having to trace costs to hundreds of different jobs, costs are traced to only a few processing departments.

4. Material Cost

   • Materials Costs are drawn from the storeroom using a materials requisition form. Materials can be added in any processing department

5. Labor Cost

   • Labor costs are traced to departments not to individual jobs.

6. Overhead Cost

   • Overhead cost is applied according to the amount of the allocation base that is incurred in the department.