Process costing is a form of operations costing which is used where standardized homogeneous goods are produced. This costing method is used in industries like chemicals, textiles, steel, rubber, sugar, shoes, petrol etc. Process costing is also used in the assembly type of industries also. In process costing, it is assumed that the average cost presents the cost per unit.
the following are Features of Process Costing:
- The production is continuous
- The product is homogeneous
- The process is standardized
- Output of one process become raw material of another process
- The output of the last process is transferred to finished stock
- Costs are collected process-wise
- Both direct and indirect costs are accumulated in each process
- If there is a stock of semi-finished goods, it is expressed in terms of equivalent units
- The total cost of each process is divided by the normal output of that process to find out cost per unit of that process.
A common example of an industry where process costing may be applied is “Sugar Manufacturing Industry”.