The main characteristics of process costing are as follows:
- A cost of production report is applied to accumulate, summarize, and calculate total and unit costs.
- Costs are captured to departmental work-in-process accounts.
- Production is accumulated and reported by departments.
- Production in process at the completion of a period is restated in terms of completed units.
- Total cost charged to a department is divided by total calculated production of the department to define an average cost for a particular period.
- A cost for lost or spoiled units is calculated and added to the cost of acceptable units completed
In process costing, costs of finished units of a department are transferred to the next processing department in order to reach finally at the total costs of the finished goods during a period.
Mainly, the procedures of process costing are designed in order to:
- Accumulate materials, labor, and FOH (factory overhead) costs by departments.
- Define a unit cost for each department.
- Transfer costs from one department to the subsequent and to finished goods.
- Assign costs to the inventory of work-in-process.
If correct unit and inventory costs are to be established by process costing procedures, costs of a period must be identified with units manufactured in the same period.