Process Costing

Process costing is used for customized products
➛ False
It is used for mass production of identical products.

Costs are accumulated by department
➛ True

All units in process costing are identical
➛ True

Equivalent units represent completed units
➛ True
in terms of completed equivalent output

1. Process costing is used for mass / continuous production

2. Costs are collected by process or department

3. Cost per unit is calculated using total / average cost

4. Equivalent units are used for partially completed (WIP) goods

A factory reports

Tasks
Calculate cost per unit

Calculation
72,000 ÷ 12,000 = 6

Final Answer
Cost per unit = $6

Calculate equivalent units
1. 200 units at 50% completion
2. 300 units at 25% completion

1. 200 units at 50% completion
200 × 50% = 100
➛ Equivalent units = 100

2. 300 units at 25% completion
300 × 25% = 75
➛ Equivalent units = 75

A beverage company produces identical bottles of juice continuously.

Questions

Which costing system should be used?
➛ Process Costing

Why is this system appropriate?
➛ Because the company produces identical products continuously.

How is cost per unit calculated?
➛ Total process cost ÷ total units produced.

What role do equivalent units play?
➛ They convert partially completed goods into equivalent full units for accurate cost calculation.

What is process costing?
➛ A costing system used for mass production where costs are averaged over units.

Name one industry that uses process costing
➛ Food production
➛ Oil refining
➛ Chemicals
➛ Beverages.

How is cost per unit calculated?
➛ Total cost ÷ total units produced.

What are equivalent units?
➛ Partially completed units expressed as fully completed units.

How does process costing differ from job costing?
➛ Process costing is for mass production; job costing is for customized production.

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Activity-Based Costing ➧ Here