Analytical summary of Process Costing
The process costing method is used for tracking production costs. Production costs tend to depend on changing processes. The term “process costing” is consistently used in cost accounting. The term is used for describing the method of collection and assigning of manufacturing costs. The technique is used when identical units are produced in bulk or mass. The term “job costing” is used with process costing; however, the two differ in their application. Job costing is also used for assigning and collecting manufacturing costs of units that tend to differ from one another. Contrarily, when the costs of units are difficult to differentiate from one another, the process costing method is employed. Hence, the difference between process costing and job costing lies mainly due to the technique of production. It has been noted that in process costing, the production method is continuous and homogenous products are used (saylordotorg.github.io, 2020). Moreover, a standardized process is employed. The process output is converted into raw material for a different process. A process-specific cost collection technique prevails. In this module, the concept of equivalent units has been explored. It is vital to consider the concept of an equivalent unit in process costing because it is not possible to complete the production process of all physical units at the same time. It can be measured by multiplying the physical units by the unit completion percentage. A 100% completion rate of physical units leads to a 100% completion of equivalent units. It is possible to assign costs to products by using the weighted average method. The method is useful because it reduces the impact of material prices (high/low). The technique is appropriate and practical for charging the material cost used in production. The management is benefitted by using the weighted average method.
Analytical summary of Cost Behavior
Cost behavior patterns are mainly used for determining the costs of production activities. Managers for accounting purposes use several types of cost behavior patterns. Variable costs might be used for identifying the cost of the volume of activities that varies during the production process (saylordotorg.github.io, 2020). Based on the type of organization, activities vary. For instance, during the bike production process, the cost of direct materials such as seats, frames, or wheels might vary because the design of each bike might not be the same. The variable cost might be doubled in case of a differently designed bike. Fixed costs refer to costs that do not vary because the volume of activity remains the same. For instance, the company pays a fixed amount every month for the production facility rent. The salary of production personnel also remains fixed every month. Despite changes in activities, the fixed costs do not vary. Another type of cost known as the discretionary fixed cost has been explained in the module. It refers to a type of fixed cost that might change in the short term, however, it does not have any significant impact on the long-term. Moreover, the module outlines two major concepts such as short-term range and long-term range. In the case of short-term planning, it is feasible to use fixed, variable, and mixed methods. In long-term planning, cost behavior is likely to change.
The usefulness of the concepts to a manager
A manager might use the process costing method for identifying the costs associated with existing processes. This management can use the process costing approach for designing and delivering products and goods. The approach is used for identifying the process of resource utilization. The available resources are obtained from the organization so that services and goods can be produced. Similarly, managers use the cost behavior patterns for determining the overall expenses of the organization (Demski, 2013). The fixed costs are separated from mixed or variable costs. The manager can predict the type of activities that might increase the overall cost of production. Consequently, the manager can take corrective steps to reduce those activities.
Numerical example
The variable cost behavior of a bicycle production company has been demonstrated below-
| Units produced | Total variable costs | Per unit variable cost |
| 1 | $50 | $50 |
| 3,000 | 150,000 | 50 |
| 4,000 | 200,000 | 50 |
Similarly, the fixed cost behavior of the bicycle production company would be-
| Units produced | Total fixed costs | Per unit fixed cost |
| 1 | $30,000 | $30,000 |
| 3,000 | 30,000 | 10 |
| 5,000 | 30,000 | 6 |
References
Demski, J. (2013). Managerial uses of accounting information. Springer Science & Business Media.
How Do Organizations Identify Cost Behavior Patterns?. (2020). Retrieved 24 July 2020, from https://saylordotorg.github.io/text_managerial-accounting/s09-how-do-organizations-identify-.html
How Is Process Costing Used to Track Production Costs?. (2020). Retrieved 24 July 2020, from https://saylordotorg.github.io/text_managerial-accounting/s08-how-is-process-costing-used-to.html