Introduction to Process Costing
Uploaded by
ScribdTranslationsIntroduction to Process Costing
Uploaded by
ScribdTranslationsMultidisciplinary Regional Faculty of Carazo
FAREM Carazo.
Department of Economic and Administrative Sciences.
Subject: Cost Accounting I
Unit III: Introduction to Process Costing
1. Objectives
Application of the generalities of the Process Costing System considering the type
company.
Preparation of the Production Cost Report.
2. Development
Process Costs: It is the procedure that transforms the material through one or several processes.
first or materials in a finished product where such production is continuous, uniform, in
large quantities and integration of the three cost elements (raw materials, labor,
indirect costs) in a specific period and to know their unit cost, it is necessary to divide the
import of the three cost elements among the finished units. Their characteristics are:
a) Various scales.
b) Various processes.
c) Continuous production.
d) Product mix.
e) Unification of cost elements.
f) Determined period in the preparation.
g) Its cost is obtained by dividing the total cost by the units produced.
Page 1 | 3
The objective of a process costing system is to determine what part of the direct materials,
of direct labor and manufacturing indirect costs is applied to the finished units and
transferred and which part applies to the units still in process.
Advantages
Continuous production.
Standardized manufacturing.
Average costs by operation centers.
More administratively economical processing.
Standardized costs.
Ejemplos de algunas industrias: Fundición, Petroquímica, Cervecera, Cementera, Papelera,
Showcase.
Disadvantages
Rigid production conditions.
Global control.
It is impossible to identify the elements of direct cost in each finished unit.
It is necessary to quantify the production in process at the end of the period and calculate the production.
equivalent
As can be seen in the definition of process costs, it outlines two major parts.
general aspects of this procedure, which are:
One or several processes for transformation
b) Continuous production in large quantities should be noted in this cost system it cannot be
interrupt the production due to being on a large scale, the unit cost cannot be known
until the end of each process and this will be taken as the start for the next process, likewise
it is important to control the production in process at the end of the period and is only applicable to certain
companies.
CHARACTERISTICS
The most important characteristics of the procedure called 'productive processes' are:
The production is continuous; in other words, the processes cannot be stopped, their
sequence is uninterrupted.
Page 2 | 3
The production is uniform because it always refers to a single type of product.
The transformation conditions are rigid
The unit cost is the result of an average, as it is difficult to determine the exact quantity.
of the inputs used for the transformation.
Substance of the materials.
It is necessary to wait for the accounting period to conclude in order to make a cut and know the
total production cost, both of the finished units and of those that are in
process.
TYPES OF COMPANIES
It is a procedure used by those companies that carry out the transformation of matter.
First or materials, some of the companies that can use it are: the food industry, petrochemicals,
changing rooms, pharmaceutical footwear etc.
Process costing is a method used to assign average costs to production.
in the manufacturing stages that generate a large number of identical products. This system
You can use the weighted average method or the FIFO method for calculating the units.
production equivalents and to assign costs to that production. With the averaging method.
weighted the units produced in the current period, and the total costs are averaged among
all the units. with the FIFO method the units produced in the previous period and reflected
the initial inventory of work in process does not mix with those of the current period, nor the costs
the production of the beginning inventory in process is added to the costs of the current period to
obtain the unit production cost.
Page 3 | 3