Management of company that manufactures small appliances is trying to decide whether to install a job order or process costing system. The manufacturing vice president has stated that job order costing gives them the best control because it is possible to assign costs to specific lots of goods. The controller, however, has stated that job order costing would require too much record keeping. Is there another costing system that might meet the manufacturing vice president’s control objective? Explain.
A process costing method is used for Indus trick producing chemical, petroleum, textile, and flour, pharmaceutical, shoos and coal. This type of costing is also used by firms manufacturing such things methods is the assembly type industry which manufactures such things as type writers, automobiles. Airplanes and house hold electric appliances. Finally certain service industries, such assgas, water, and heat, cost their products by using process costing methods. In fact process costing procedure are often termed” continuous or mass production cost accounting procedure.
Characteristics and process of costing.
The characteristics of process costing are:
- A cost of production report is used to collect, summarize, and compute total and unit cost.
- 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 costs charged to a department are 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.
Characteristics and procedure.
- Accumulate material, labor, and factory over head costs by departments.
- Determine a unit cost for each department.
- Transfer costs from one department.
- Assign coast to the inventory of work still in process.
- If accurate unit and inventory costs are to be established by process costing procedure, costs of a period must be identified with units produced in the same period.