Company managers need to keep track of costs in order to make wise decisions about day-to-day operations. In this article, we discuss process costing, a method of allocating costs for manufacturers of many identical products
1. Cost allocation - process costing
Sometimes the task of assigning costs to an individual product is simple and cost-effective. Raw materials and labor are relatively easy to track for yacht manufacturers. For such companies, job costing is an efficient cost allocation method. What about a company that produces hundreds of thousands of indistinguishable products? How does a Coke plant determine the cost to produce a single bottle of soda in a way that is not prohibitively time consuming or expensive? For this type of manufacturer, we use a fundamentally different cost allocation method called process costing. Instead of tracing costs to an individual product, we instead trace costs to a single process and then allocate those costs to all products moving through that process. A Coke plant, for example, might have processes like mixing, bottling, and packaging.
For more click here:-
Description of process costing in accounting
1. Cost allocation - process costing
Sometimes the task of assigning costs to an individual product is simple and cost-effective. Raw materials and labor are relatively easy to track for yacht manufacturers. For such companies, job costing is an efficient cost allocation method. What about a company that produces hundreds of thousands of indistinguishable products? How does a Coke plant determine the cost to produce a single bottle of soda in a way that is not prohibitively time consuming or expensive? For this type of manufacturer, we use a fundamentally different cost allocation method called process costing. Instead of tracing costs to an individual product, we instead trace costs to a single process and then allocate those costs to all products moving through that process. A Coke plant, for example, might have processes like mixing, bottling, and packaging.
For more click here:-
Description of process costing in accounting
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