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Process Costing
A method of assigning costs to units produced. This method is appropriate when the units produced are homogeneous, meaning that they are very similar or identical. This applies to products that are mass produced.
Examples of products using process costing:
- Cans of soda
- Pencils
- iPhones
Work-in-Process
- The production process has multiple work in process inventory
- Each WIP account represents a different stage in the production process
- Units are moved from account to the other until they are completed
How are Costs Accounted For
- Costs incurred by the process in question are typically referred to as Costs added
- Direct materials are accounted for separately
- Direct labor and Manufacturing overhead are typically accounted for together, these are called conversion costs
- Transferred-in costs include all costs incurred by previous processes.
