The aggregation of labor, material, or overhead expenses across whole departments or entities, with the overall production cost given to individual units. When vast numbers of the same product are made, typically in extended production runs, process costing is utilized.
1. Easy Costing Method
Process costing is a straightforward way of calculating the expenses of each stage or process of manufacturing. Because of the homogeneity of the items, the average cost of the product can be computed quickly.
2. Cost Calculation on a Regular Basis
With minimal clerical and paper work, the cost of each process and the per unit cost of final products may be established on a regular basis at short intervals.
Process costing is appropriate for standardized items, mass manufacturing, identical or homogenous products, and so on.
1. Historical Importance
This pricing approach makes use of historical or previous cost data. As a result, it may not give precise cost information for improved control.
2. Lack of precision
Because it is based on average cost, there is a possibility of inaccuracy or error when calculating the cost of work in progress or finished items.
Process costing is ineffective for a wide range of items. It is only applicable to identical items.