Question

What is a specific, real life manufacturing company (big or small) that would be a good fit for the Process Costing method. Explain why you feel that your company would be a good candidate for Process Costing. Also, describe how you believe the units of product move through the processing department(s) and how direct labor, direct material and manufacturing overhead cost are added in each department (keep in mind that direct labor and material in process costing are traced to processing departments rather than units of products). Finally, explain what allocation base you would suggest for the calculation of the predetermined overhead rate(s) in your processing departments and why.

Answer 1

Answer is given below

Please note manufacturing process is visualized

Pen manufacturing company would be an example for process costing This company follows process costing because it produces non standardised items in mass Also orders are not customer order driven and the Pricing is also standardized There would be ideally 3 Departments 1 Moulding Department 2 Assembling Department 3 Packaging and Labelling Process flow; Process would start by moulding all the plastic and metal components for required pen shape Once the parts are ready like pen, cap and tube along with refill It will be transferred to Assembly Department for assembling into Pen. Once pen is assembled it will be sent to Packaging department for packaging and then transfer to finished goods warehouse Following cost will be added in each department Moulding Department Cost of Raw material - Polystyrene, ink Labor engaged in production lines Overheads- machine maintenance, utilities, indirect material - oil, lubricants etc Assembling Department Cost transferred in from Moulding Department Assembly workers wages Overheads - Production supervisor, Depreciation, etc Packaging and Labelling Cost transferred in from Assembly Department Other Direct Material-Labels, Packing Cartons, etc Packaging workers cost Overheads- Production supervisor, Utilities Allocation of overhead would be based on cost driver for calculating predetermined overhead rate Moulding Department- Machine hour because it needs machine to mould Assembling Department - Labor hour if manual operations in department Packaging Department - Labor hour if manual operations in department If Assembly/Packaging Department is automated machine hour can be used as a basis