Quiz 6: Process Costing

Business

Process Costing Process costing is a costing system where costs are accumulated as per the process and department and then assigns the cost to the homogeneous products. It is called as a process costing because cost is calculated process or department wise instead of product wise in this system. Characteristics of company using process costing: 1. Homogeneous products: Companies which uses process costing produces homogeneous products only because then only they can use same process again and again. 2. Mass production of goods: In process costing manufacturer produces goods in masses which go through the similar processes. 1. Continuous production: Process costing is used by companies where process is continuous i.e. output of one process will become input of next process. 2. Product requires to goes through different processes: Process costing can only be used if product is required to go through different processes. If only single process is required than process costing will not be applicable.

Process Costing Process costing is a costing system where costs are accumulated as per the process and department and then assigns the cost to the homogeneous products. It is called as a process costing because in process costing, cost is calculated process or department wise instead of product wise. Types of industries that uses process costing: In manufacturing organization process costing is used by the organization which uses the same produces the almost identical products and requires to be went through more than one process. Examples of such industries are rubber, mining, automobile production lines, electronics etc. Further, process costing is also used in service sector where service provided is of repetitive nature and homogeneous to each other. Example in service industry is check clearing service in a bank which uses same set of process every time a check is cleared.

Costing: Costing refers to the calculating cost of the product using various techniques. Costing is used to assign and allocate the cost at the various stages of production because a product goes through various stages before reaching to stage of final product. Difference between job costing and process costing: 1. Job costing refers to the calculation cost of a product or service which is done as per the client's need whereas process costing refers to the calculation of cost based on process used in the manufacturing process. 2. Standardized products are produced in job costing whereas homogeneous products are produced in process costing. 3. In job costing cost is ascertained at the end of each job whereas in process costing cost is computed at the end of the process only. 4. Work in progress may not exist in Job costing but in process costing work in progress will always exists due to the transfer from one process to another. 5. Job costing is generally used in service industry but process costing is mainly used in manufacturing concern.

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