Process costing is a system of assigning costs to products in proportion to the amount of processing they undergo.
A company that applies process costing is most frequently characterized by:
A) it uses job order cost accounting.
B) its costs are assigned to jobs instead of inventories.
C) it allocates overhead based on direct labor hours or machine hours.
Company A has the following characteristics:
C) it allocates overhead based on direct labor hours or machine hours.
Company B is characterized as follows:
It does not use job order costing.
Instead, product costs take into account fixed manufacturing overheads that are allocated evenly across all units produced in a period (e.g., weekly).
This method is called batch production costing because one amount of indirect material will be used for many batches; hence “batch.
” Cost per batch can be computed by multiplying unit price times quantity multiplied again by number of batches made during the time frame being evaluated divided.
