Advantages of Process Costing: The customer will usually enquire about the price, quality to be maintained, the duration within which the order is to be executed and other specification of the job before placing an order.
Dyckman, The process cost system makes no attempt to account for the goods of individual items or specific groups of items. Further, it involves more supervision. An independent report concluded that manually driven ABC was an inefficient use of resources: Likewise, the cost of finished product is calculated by dividing the total production cost into the number of units produced.
It is accurate and is useful in the case of "Cost plus Contracts" where price is to be determined finally on the basis of actual cost.
For making a choice between different courses of action, it is necessary to make a comparison of the outcomes, which may be arrived under different alternatives.
The production will be stopped if the plant and machinery is shut down for repairs. As such, when the homogeneous products are produced through continuous process, a process costing system is usually appropriate.
The cost per unit is calculated by dividing the number of units produced in a process into the total costs incurred for processing the same number of units in a specified period. All the items of process costing i.
The management has clearly defined process cost centers and the accumulation of costs such as cost of material, cost of labour and overheads by the cost centre. Hence, process costing is termed as operations costing, which applies where standardized goods are produced in large volume with continuous flow of production.
ABC is generally used as a tool for understanding product and customer cost and profitability based on the production or performing processes. Cost ascertained by the above two methods may be compared with the standard costs which are the target figures already compiled on the basis of experience and experiments.
Process costing is useful or found to be most suitable for industries engaged in continuous manufacture of products in bulk in which the units of products are uniform and cannot be differentiated. Thus it is expensive.
This allows the calculation of the input costs and permits this cost to be allocated across the units of output. Actual cost of performance should be measured in the same manner in which the targets are set up, i.
This is based on the cost of execution of similar job in the previous year and considering the possible changes in the various elements of the cost.
But, by-products may require further processing before they can be sold. The bleached color of the refined sugar is then achieved by a process involving the input of sulphur dioxide.
Process Account There will be a process account for each stage of production, with the output from each stage becoming either an end product, one of the inputs for the next stage of production or both.
It involves less clerical work and cost than job costing. The production is carried on continuously and passing two or more processes.
The precise costing method may depend on the nature of the product, the type of business and on what is done with the results of the costing when they are delivered to management. The main objectives of Cost Accounting are as follows: The characteristic features of job costing are: As distinct from contract costing, each job is of comparatively short duration.
Activity based costing, even though originally developed for manufacturing, may even be a more useful tool for doing this. The approach has proven useful in many service industry areas including healthcare, construction, financial services, governments, and other industries.Job costing is a method of cost accounting whereby cost is compiled for a specific quantity of product, equipment, repair or other service that moves through the production process as a continuously identifiable unit, applicable material, direct labour, direct expenses and usually a calculated portion of overheads being charged to a job order.
Process Costing – Principles, Features, Objectives, Application According to Harold Bieman Jr. and Thomas R.
Dyckman, The process cost system makes no attempt to account for the goods of individual items or specific groups of items. Activity-based costing (ABC) Evaluate mission and objectives for the project.
Identify activities and drivers - Determine what drives what activity. (EVA) criteria with process based costing (PBC). Authors note that activity-based costing system is introspective and focuses on a level of analysis which is too low. On the other hand. Process Costing – Principles, Features, Objectives, Application According to Harold Bieman Jr.
and Thomas R.
Dyckman, The process cost system makes no attempt to account for the goods of individual items or specific groups of items. Process costing is a method of costing used to ascertain the costs of each process or operation or stage of manufacture. Kohler defines process costing as a method of accounting whereby costs are charged to processes or operations and averaged over units produced; it is employed principally where a.
5 essential objectives of Cost Accounting In order to be of any use, costing must be a continuous process. Cost ascertained by the above two methods may be compared with the standard costs which are the target figures already compiled on the basis of experience and experiments.Download