Process cost accounting

In chapter 20 of ‘Fundamental accounting principles’, John J. Wild discusses the topic on process cost accounting. This is the process where information on the collection and assignment of cost method used to produce units is described and its cost identified. It is often conducted when an organization is about to mass produce units that are nearly produced.  An equivalent unites of production is drawn if the units that were originally intended to be completed after all efforts are done at a specific time frame are applied to units that were initiated and accomplished. For this purpose, a process cost accounting system is used for the purpose of allocating raw materials, overhead and labor to certain processes and the overall cost of all the processes (Chiappetta, Shaw & Wild, 2011).

            When producing products, an organization engages in process manufacturing where raw materials used in production undergo some form of physical or chemical change so as to produce the desired product. Through it, an organization is able to change raw materials and transform them to products that will be able to meet the needs of the target market (Chiappetta, Shaw & Wild, 2011). It is through this process that an organization is able to create high quality products that give customers value for their money. A process cost summary is thus drawn to show the cost that is to be charged to each department that was involved in the organizations operations such as manufacturing. The equivalent unities that have been achieved after production and the cost that have been assigned to produce or manufacture it are also allotted in the process cost summary so as to account for the overall cost of processes that an organization engages in (Chiappetta, Shaw & Wild, 2011).

 

Reference

Wild, J. J., Shaw, K. W., & Chiappetta, B. (2011), Fundamental accounting principles, New        York: McGraw-Hill Irwin.