What is Process costing?

A process costing system accumulates the costs of a production process and assigns them to the products that comprise the organization’s output. Production report has to be made under process costing system.

Computation of unit cost under process costing system

The computation of units costs for the work performed during a period is a key part of the production report. You might think that this is easy —just divide the total cost by the number of units produced. However, the presence of work in process inventories causes problems. You cannot calculate the total output of the period by just taking the sum of completed units and work in process (ending inventory). Because units in the work in the process inventory are not 100% complete. This problem is handled through the concept of equivalent units of production.

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