Whenever a business produces many identical units, they will use a process costing system. Process-costing is used in a business to accumulating direct material, direct labor, and manufacturing costs for a large batch of products and then allocated them to the individual units produced. The assumption is that the cost of each unit is the same as that of any other unit, so there is no need to track information at an individual unit level. A good example of a process costing environment is a petroleum refinery, where it is impossible to track the cost of a specific unit of oil as it moves through the refinery.
This discussion addresses the following module outcome:
- MO2: Examine how a cost of production report can be used in decision-making (CO2)
Please review all readings and viewings prior to starting your discussions and homework.
Next, address the following question in your initial post:
- How can process-costing be used in a manufacturing environment?