Question

Under what conditions would it be appropriate to use a process costing system? Provide detailed in-depth support.

Answer 1

Process costing system :-Process costing is an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process.It is a method of assigning costs to units of production in companies producing large quantities of homogeneous products.

Most appropriate condition for using process costing system is:-

Process costing is suitable for industries producing homogeneous products and where production is a continuous flow.it is appropriate for companies that produce a continuous mass of like units through series of operations or process. Also, when one order does not affect the production process and a standardization of the process and product exists. However, if there are significant differences among the costs of various products, a process costing system would not provide adequate product-cost information. Costing is generally used in such industries such as petroleum, coal mining, chemicals, textiles, paper, plastic, glass, food, banks, courier, cement, and soap.