A process costing system

Question

Quizplus · Accepted Answer

A process costing system accumulates costs by department, and calculates the cost per unit based on the total cost of manufacturing a batch of identical units. This means that Work in Process Inventory cannot simply be restated in terms of completed units based on direct materials cost, as with a job costing system. Instead, equivalent units must be calculated to account for partially completed units in each department. Standard costs can be used in a process costing system to help identify variances from the expected cost of producing each unit. Direct labor and manufacturing overhead costs are combined and assigned to units based on an overhead rate, rather than separately assigned.

A Process Costing System