PROCESS COSTING

Similar to Job Costing, when a Job Cost Sheet is used to keep track of costs for one project, Process Costing uses a Production Report to keep track of total production within each department.

 

The purpose is threefold: (1) Summarizes the number of units being put through, (2) computes unit costs as units are being put through, (3) reconciles costs to a particular process.

 

In analysis of the type of process method put into use, there are different types. These being sequential or parallel to one another.

 

Similar accounting is done to move intentory from Raw Materials to finished goods, only each department has its own accounts.

 

dr    Work in Progress - Departement A. . . . XXX

dr    Work in Progress - Department B. . . . . XXX

cr    Manufacturing Overhead . . . . . . . . . . . . . . . . . XXX

cr    Salaries & Wages Payable . . . . . . . . . . . . . . . . XXX

 

dr Work in Progress - Department B. . . . . XXX

cr Work in Progress - Departement A. . . . . . . . . . . . . XXX

 

Costs of materials, labour and overhead are transfered to the next department for further processing. At the end of the process, the final department, transfers Work in Progress to finished goods.

 

dr Finished Goods. . . . . . . . . . . . . . . . . XXX

cr Work in Progress - Department B. . . . . . . . . . . . . XXX

 

Once the sale is made, the Finished Goods are closed out to Cost of Goods Sold.

 

dr  Cost of Goods Sold . . . . . . . . . . . . . . . .  XXX

cr  Finished Goods . . . . . . . . . . . . . . . . . . . . . . . . XXX

 

At the end of a period, the costs from one department are reconciled to the costs from all other departments, providing an entry has been made in the transfer sheets from each department relevant to the manufacturing process.