Product Flow in Process Costing System:
A product can flow through a
factory in numerous ways. Three product flow formats associated with
process costing - sequential, parallel, and selective - are
illustrated here to indicate that basically the same costing
procedures can be applied to all types of product flow situations.
Sequential Product Flow:
In a sequential product flow,
each item manufactured goes through the same set of operation, as
illustrated below.
|
Work in Process
Blending Department |
Materials
Labor
FOH* |
|
|
→ |
|
Work in Process Testing Department |
Labor
FOH* |
|
|
→ |
|
Work in Process
Terminal Department |
Labor
FOH* |
|
|
→ |
|
*Factory
Overhead Materials are placed
into production in the Blending Department, and labor and factory
overhead are added. When the work is finished in the Blending
Department, it moves to the Testing Department. The second process, and
any succeeding processes, may add more materials or simply work on the
partially completed input from the preceding departments, adding only
labor and factory overhead, as in this example. After the product has
been processed by the Terminal Department, it is a completed product and
becomes a part of finished goods inventory. Parallel Flow:
In a parallel product flow, certain
portion of the work are done simultaneously and then brought together in
a final process or processes for completion and transfer to finished
goods inventory. As in the previous illustration, materials may be added
in subsequent processes. Selective Product Flow:
In a selective product flow, the
product moves to different departments within the plant, depending upon
the desired final product. For example, in meet processing, after the
initial butchering process, some of the product goes directly to the
Packaging Department and then to finished goods inventory; some goes to
the Smoking Department and then to the Packaging Department and finally
to finished goods inventory; Some goes to the grinding department, then
to the packaging department and lastly to finished goods inventory.
Transfer of costs from the Butchering Department involves joint cost
allocation, discussed on
By-Products and Joint Products Costing page. |
