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What is Process Costing?, Process costing is used when there is mass production of similar products, where the costs associated with individual units of output cannot be differentiated from each other. , In other words, the cost of each product produced is assumed to be the same as the cost of every other product. , Under this concept, costs are accumulated over a fixed period of time, summarized, and then allocated to all of the units produced during that period of time on a consistent basis.

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What is Process Costing?

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Definition of Process Costing

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Examples of the industries, where this type of production occurs include:, oil refining, food production, and chemical processing. , For example, how would you determine the precise cost required to create one gallon of aviation fuel, when thousands of gallons of the same fuel are gushing out of a refinery every hour? , The cost accounting methodology used for this scenario is process costing., Process Costing method may also be adopted in firms that produce a variety of products, provided that the overall production process can be broken down into sub-operations of a continuous repetitive nature like automobile, toy, plastics etc.

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Features of Process Costing

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Features of Process Costing

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Features of Process Costing

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Features of Process Costing

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WHY PROCESS COSTING USED?, Process costing is the only reasonable approach to determining product costs in many industries. , It uses most of the same journal entries found in a job costing environment, so there is no need to restructure the chart of accounts to any significant degree. , This makes it easy to switch over to a job costing system from a process costing one if the need arises, or to adopt a hybrid approach that uses portions of both systems.

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EXAMPLE