Question

Write an analytical summary of your organization on Process Costing and Cost Behavior.

Please need 300 words and 0% plgarisum

Answer 1

Process costing

Process costing is a method of costing which is used in industries having raw materials pass though multiple process or department before the final product is produced. For example: Refinery industry, sugar industry, chemicals industry, paints industry, etc

Features of Process costing:

· Production of output is homogenous and identical

· The output is not customer order driven

· Production of output is on mass scale and continuous basis

· The selling price of the product is standardised

· Market exists for the products to be manufactured

· There are normal and abnormal losses and gains to be accounted

· The work in process units is measured in terms of equivalent units

· Costs are accumulated at process or department level

· Cost per equivalent unit is used in accounting for cost of units completed and transferred and closing work in process

The process costing accounting is done based on 2 methods of FIFO and Weighted average cost method. FIFO method considers the work completed on unfinished portion of opening WIP where as weighted average cost does not consider the same.

Cost Behaviour

Costs can be classified based on be behaviour in following 3 ways

· Variable cost

· Fixed cost

· Mixed cost

Variable costs: Variable costs are the costs which directly vary with production and sales of output. For example: Direct material, direct labor, indirect material, sales commission, etc. They are constant at per unit level and they vary in total based on changes in output. When output increases the total variable cost increase and when output decreases the total variable cost decrease.

Fixed costs: Fixed costs are the costs which are fixed irrespective of the level of production and sales. For example: Depreciation, rent, salaries, insurance etc. The total fixed cost remains the same but they vary at per unit level depending on production and sales. The higher the volume the lower the fixed cost per unit and lower the volume the higher the fixed cost per unit

Mixed cost: This type of cost has both elements of variable cost and fixed cost in it. A certain portion varies with output and certain proton is fixed for relevant range of production. For example: Factory electricity, Factory utliities, etc