Process Costing

Process Costing

Process costing is a method of assigning costs to units of production in companies producing large quantities of homogeneous products. It is the only evenhanded approach to determining product costs in many industries. It is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture. There are three different kinds of process costing: weighted average costs, standard costs, and First-in First-out (FIFO).

Process costing is a method of costing under which all costs are accumulated for each stage of production or process, and the cost per unit of product is ascertained at each stage of production by dividing the cost of each process by the normal output of that process. It is most generally used when goods are mass produced and when the costs related to individual units cannot be easily distinguished from each other.

CIMA defines – “Process costing as that firm of operation costing which applies where to standardize goods are produced”.

According to Basu & Das – “Process costing may be defined as the costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Costs are arranged over the units produced during the period”.

Finally, It is used to ascertain the cost of a product at each operation, the process of the stage of manufacture.