Consider the products of General Mills, Nestlé, Proctor & Gamble and 3M. Almost all of these products are mass produced. Because they are mass produced, they are an ideal fit for a process costing system. However, many of these products are made in multiple stages and across multiple production departments, adding significant complexity to a simple, single department process costing system. Further, some of these products likely require operations costing, where the product is mass produced but with slight variations, as required for certain batches.
When multiple stages and multiple production departments are involved, process costing can become challenging. However, the same principles applied in a single department process costing system can be applied to a system with 3, 30, or 300 departments. Further adding to the potential complexity, process costing may need to be combined with job-order costing, resulting in the formation of an operations costing or hybrid costing system.
For example, how should a company respond when a special order comes in for a product with a costly variation in direct materials? How can managers know what to charge for the order? How can they predict the profit margin for that product? Without knowing the true cost and therefore the true profit of their products, managers cannot answer these questions. A process costing system that accurately reflects the production process and incorporates job-order costing as needed is one way to ensure managers have the information they need to make such decisions.
Which costing system is the most suitable for your organization? Does it make more sense to use process costing or operations costing? Do you know how to deal with the complexities of having multiple stages in your production process? It’s easy to ignore those complexities, but doing so means less accurate product costs. The Accenture Academy courses Process Costing with Two Production Departments, Process Costing with Three Production Departments, and Product Costs Using Operations Costing will help you to recognize and deal with some of the most common complexities of process costing, enabling you to better achieve organizational goals and regulatory requirements.
Accenture Academy offers proven, cost-effective learning solutions for a more versatile workforce and a more agile organization. We provide a flexible learning approach that helps your people be more versatile and your entire organization be more agile in the marketplace. Curriculum includes Supply Chain Management, Finance, Procurement, Analytics, Leadership & Management and Specialty Skills.