Page 201 - F2 - MA Integrated Workbook STUDENT 2018-19
P. 201
Process costing
Process costing
Process costing is the costing method applicable where goods or
services result from a sequence of continuous or repetitive operations
or processes.
Process costing is used when a company is mass producing the same item and the
item goes through a number of different stages.
Process costing is an example of continuous operation costing.
Examples include the chemical, cement, oil refinery, paint and textile industries.
Example 1
Fresh Walls manufactures paint through a series of processes. The data for
the first process during a particular period is as follows:
The first stage is to input the raw materials to make the paint and mix and
combine these materials. To do this the manufacturer incurs costs for
materials, labour and overheads. By changing or processing the raw
materials the value of the raw materials increases due to the cost of the
labour and overheads.
We can show this by using a process account.
Process 1 account
Litres $ Litres $
Output to
Materials 2,000 3,000 2,000 4,000
Process 2
Labour 570
Overheads 430
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2,000 4,000 2,000 4,000
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