CostAccountingSeventeenthEdition,GlobalEditionChapter18ProcessCostingCopyright?2021PearsonEducationLtd.

LearningObjectives(1of2)18.1Identifythesituationsinwhichprocess-costingsystemsareappropriate18.2Understandthebasicconceptsofprocess-costingandcomputeaverageunitcosts18.3Describethefivestepsinprocess-costingandcalculateequivalentunits18.4Usetheweighted-averagemethodandfirst-in,first-out(FIFO)methodofprocesscosting

LearningObjectives(2of2)18.5Applyprocess-costingmethodstosituationswithtransferred-incosts18.6Understandtheneedforhybrid-costingsystemssuchasoperationcosting

JobVersusProcess-CostingJob-costingsystemsDistinct,identifiableunitsofaproductorserviceExamples:Custom-mademachines,housesProcess-costingsystemsMassesofidenticalorsimilarunitsofaproductorserviceExamples:Food,chemicalprocessing

ProcessCostingProcesscostingisasystemwheretheunitcostofaproductorserviceisobtainedbyassigningtotalcoststomanyidenticalorsimilarunitsofoutput.Unitcostsarecalculatedbydividingtotalcostsincurredbythenumberofunitsofoutputfromtheproductionprocess.Eachunitreceivesthesameorsimilaramountsofdirectmaterialscosts,directmanufacturinglaborcosts,andindirectmanufacturingcosts(manufacturingoverhead).

MoreonJob-VersusProcess-CostingInajob-costingsystem,individualjobsusedifferentquantitiesofresources,soitwouldbeincorrecttocosteachjobatthesameaverageproductioncost.Incontrast,whenidenticalorsimilarunitsofproductsorservicesaremass-produced,processcostingisusedtocalculateanaverageproductioncostforallunitsproduced.Themaindifferencebetweenprocesscostingandjobcostingistheextentofaveragingusedtocomputetheunitcostsofproductsorservices.

Process-CostingCostCategoriesProcess-costingsystemsseparatecostsintocostcategoriesaccordingtowhencostsareint