Process Costing
A cost accounting method for homogeneous products manufactured in continuous processes, averaging costs across all units produced during a period.
Process Costing
A cost accounting method used when similar products are mass-produced in a continuous process, assigning manufacturing costs to production departments and then allocating them evenly across all units produced during a period.
For instance, an oil refinery might use process costing to determine that each barrel of gasoline produced during the month cost $65, calculated by dividing the total refining department costs of $6.5 million by the 100,000 barrels produced.
Process costing contrasts with job order costing (used for unique products) by focusing on production departments or processes rather than specific jobs. It’s appropriate for industries with homogeneous products manufactured in continuous or repetitive processes, such as chemicals, textiles, food processing, or cement production. The method calculates average unit costs for each process, tracks work-in-process through equivalent units, and transfers costs between processes as production moves through sequential stages.