Question

2.5 With the aid of any suitable diagram, review the process costing method in MKL 5050 LLC in the production of the electric fan. (E3:3.6) (8 MARKS)

Answer 1

Under Manufacturing Unit – One of the best method to follow is process costing . process costing creates a flexible production process. One of the important point to note that Process costing is an allocation system companies use to allocate cost for homogeneous item produced by a company .

With help of process costing simplicity , Management accountant can derive simple average cost for each product produced . Under this costing system , each process applies direct Material + Labour + manufacturing OH to determined cost of the product along with Number of goods produced to determined average cost per unit

Definitely process costing provide much more flexibility in the system .Most important Business owner can control Product cost . Business owner can refine the process and control cost . This system bring most cost effective flexible process plan in marketplace

Process costing , another name is Operational costing . Process costing is much more effective in case of company engaged in producing homogeneous products and production having continuous flow

Company can easily keep on track over money where their money being spent in the production and distribution process.

Process costing system requires less Bookeeping as compared with Job order costing .