Title Costing Systems - Chapter 2 - part 1.pdf ✅

A system used to assign costs to units of production in companies producing large quantities of homogeneous (Similar) products. Costs are tracked by process or department over a specific period. It is used in industries like chemicals, textiles, steel, rubber, sugar, shoes, petrol Example: Production of Soft Drinks What is a Process Costing System ? Process 1 Process 2 Process 3 Manufacturing Processes
Basic Definitions of Process Costing System 1- Physical Units: The actual number of units processed during a period, including completed units and units in progress. 2- Equivalent Units of Production (EUP): A computation that converts partially completed units into a number of fully completed units. This helps in accurately assigning costs to completed units and ending WIP. 3- Conversion Costs: The sum of direct labor and manufacturing overhead costs. These costs are incurred to convert raw materials into finished goods. 4- Transferred-In Costs: Costs incurred in previous processes that are carried forward to subsequent processes as part of the production cost of those processes 5- Production Cost Report: A detailed report summarizing the production and cost data for a specific process or department, typically prepared at the end of a period. It includes information on physical units, equivalent units, and costs assigned to units. 6- Cost Reconciliation: The process of ensuring that total costs accounted for (beginning inventory costs, costs added during the period, and ending work in progress) match the costs assigned to completed units, transferred units, and abnormal losses.