Characteristics and Procedure of Process Costing System:
The characteristics of process costing
system:
- A cost of production report is used
to collect, summarize and compute total and unit costs.
- Production is accumulated and
reported by departments.
- Costs are posted to departmental
work in process accounts.
- Production in process at the end of
a period is restated in terms of completed units.
- Total cost charged to a department
is divided by total computed production of the department in order to
determine a unit cost for a specific period.
- Costs of completed units of a
department are transferred to the next processing department in order
to arrive at the total costs of the finished products during a period.
At the same time, costs are assigned to units still in process.
The procedures of process costing are
designed to:
- Accumulate materials, labor, and
factory overhead costs by departments.
- Determine a unit cost for each
department.
- Transfer costs from one department
to the next and to finished goods.
- Assign costs to the inventory of
work in process (WIP)
If accurate units and inventory costs are
to be established by process costing procedures, costs of a period must be
identified with units produced in the same period.
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