Process costing method is a type of costing method that calculates first the costs per a single (production) process. The method is based on the assumption that the outputs of previous process are the material inputs to the following process. As the result, the costs per a single product are ascertained in the next step by dividing total costs of the last process by production quantity.
Process costing is used when a mass of indistinguishable products are manufactured in several ongoing processes and the costs of one product is the same as the cost of another product.
Typical industries using process costing: chemistry or garments
For each process are often used so called process accounts. They show natural (quantities) and monetary inputs (debits) and outputs (credits) of each process are prepared.
The cost inputs usually include:
Unfinished units are allocated only proportional costs based on the stage of completion.