Essay Cost Accounting and Costing Process-based Costing

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Process-Based Costing
Cost Accounting
July 12, 2010

Process-Based Costing Process-based costing is used when a company mass produces identical product(s) that cannot be identified as different jobs during the manufacturing phase. Where continuous or large scale batch production exists “individual units of output cannot be differentiated from each other” (Accounting Tools, 2010). Each unit of product in the production line is assumed to be equal. This happens in industries like oil refining, food production, and chemical processing. Three methods of process-based cost accounting are available for managers. Each method is based on a different cost variable. The weighted average cost method aggregates all costs from previous and current periods and assigned them to units completed and in process. The standard costs method assigns standard costs to units of production instead of actual costs. The result is compared to actual accrued costs. Any difference between the two numbers is charged to a variance account. The last method of process-based costing is called first-in-first-out costing. FIFO costing is the most complex and creates classes of costs based on the period a unit is produced. The three methods of process-based cost accounting combine to cover the needs of the many types of businesses that require a process based cost accounting system. The weighted average method is used in cases where no standard costing system exists or when costs do not fluctuate

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