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What is process costing?

Process costing can be defined as the method of estimating the production cost of product per unit, by allocating cost to each production process.

This process includes cost of estimated time taken to produce the product, and compares the output of production at the same time period.

What are the applications of Process Costing?

Process costing is applied in those industries where goods are produced in high volume, with the continuous flow of production. Application of process costing is only applied where there are minimum two production processes.

The industry unit, which has only one production process, does not necessarily have to apply process costing.

Products with applied costing:

Following are some of the products where process costing is applied:

  • Manufacturing of chemicals
  • Cement
  • Coal
  • Lubricants
  • Pharmaceuticals
  • Plastics
  • Oil refining
  • Beverages
  • Meat factories
  • Food products
  • Manufacturing of dairy products

As process costing is valuable where there is a continuous flow of production, there can be some exceptional cases where the process costing can be applied, such as, the time gap between the shutdown, due to maintenance work, and restart of the production unit.

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