Jaap de Jonge, Management Consultant, Netherlands
Process costing in cost accounting is one method for collecting and assigning manufacturing costs to the units produced. Processing cost is used when identical or nearly identical units are mass produced, where the costs associated with individual units of output need not be differentiated from each other. The cost of each product produced is assumed to be the same as the cost of every other product.
Producing the products may require several processing operations, which are being added to the cost of the products.
Process costing is a method of assigning costs to units of production in companies producing large quantities of homogeneous products. It is applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Costs are averaged over the units produced during the period. Typical examples of industries where process costing occurs are manufacturers where production is a continuous flow, such as food production and manufacturing of cosmetics.
When the units manufactured vary significantly from one another, Job Order Costing
is used instead.