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Process costing serves two related purposes. First, it measures the cost of goods manufactured on both a total and per-unit basis. This information is used in valuing inventories and in recording the cost of goods sold. But process costing also provides management with information about the per-unit cost of performing each step in the production process. This information is useful in evaluating the efficiency of production departments and often draws attention to potential cost savings.
Milton Manufacturing uses a process costing system. Products are processed successively by Department and Department Y and are then transferred to the finished goods warehouse. Shown below is cost information for Department Y during the month of May:
The assignment for this unit will consist of two parts, in a word document of 1-2 pages, addressing the following questions.
Briefly explain the operation of process costing, including the way the unit costs of finished goods are determined.
Discuss how managers will use the information obtained from process costing.
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