PROCESS COSTING

Process Costing Example

Process costing is one of two primary means of valuing inventory and cost of goods sold (COGS).  In this system, costs are assigned continuously rather than by job as with a job order costing system.  A process costing system is suited for companies that offer mass produced products and services.

BENEFITS OF PROCESS COSTING

A process costing system allows your organization to conveniently compare results between departments, periods, and items.

THE PROCESS COSTING PROCESS

• Ensure that a process costing system is appropriate for the organization
• Refer to the operating budget for the necessary direct material, direct labor, and overhead information
• Discover the capabilities of the firms current accounting software to facilitate a process costing system
• Work with the appropriate individuals in the company to make any practical necessary to the company’s software to better facilitate process costing
• Continuously review the capabilities and potential improvements to the system 

FURTHER READING

These links elaborate on the topic at hand.  They serve as a good starting point for those companies that would like to learn more or would like to address these topics “in house.”  For those firms that prefer to continue to focus on their current responsibilities and would value the objective viewpoint of a professional from outside of the organization, click here.

Principles of Accounting Chapter 20
Excerpt:  “Under process costing, we will instead capture the costs for each process or department.  Let's think about a steel production factory.  The basic processes for producing steel are to (1) melt iron ore (along with perhaps processed coal/coke and limestone)...”

ImperoCo Business Solutions - "Developing Organizational Success."