Рет қаралды 40,804
Process cost calculation is a method of determining the cost of manufacturing a product by analyzing the expenses incurred during a production process. This method is typically used in industries that produce large quantities of similar products, such as food and beverage, chemical, and pharmaceutical manufacturing. In these industries, the manufacturing process involves multiple stages or steps, and each stage contributes to the overall cost of the final product.
The process cost calculation begins with identifying the different stages of the production process and determining the cost of raw materials and labor associated with each stage. The direct costs, which include the cost of raw materials and labor, are then allocated to each stage based on the percentage of resources used in each stage. This allocation can be done by using a variety of methods, including the physical units method, weighted average method, and first-in, first-out (FIFO) method.
Once the direct costs have been allocated to each stage, the indirect costs, or the overhead costs, are allocated to each stage based on the cost driver associated with each stage. The cost driver is a measure of the activity that causes the overhead cost, such as machine hours, labor hours, or square footage. The allocation of indirect costs can be done by using a variety of methods, including the direct labor cost method, machine hour rate method, and activity-based costing method.
After all direct and indirect costs have been allocated to each stage, the total cost of production for a single unit can be calculated by adding up the costs for each stage. This total cost can then be used to determine the selling price of the final product, taking into account other factors such as desired profit margin, competition, and market demand.
The process cost calculation can be illustrated with an example from a food manufacturing plant that produces chocolate bars. The production process consists of three stages: mixing, molding, and packaging. The direct costs for each stage are as follows:
Mixing stage: $1.00 of raw materials and $0.10 of direct labor per bar
Molding stage: $0.50 of raw materials and $0.20 of direct labor per bar
Packaging stage: $0.10 of raw materials and $0.05 of direct labor per bar
Assuming that the plant produces 10,000 chocolate bars, the total direct costs for each stage can be calculated as follows:
Mixing stage: (10,000 bars x $1.00) + (10,000 bars x $0.10) = $10,000 + $1,000 = $11,000
Molding stage: (10,000 bars x $0.50) + (10,000 bars x $0.20) = $5,000 + $2,000 = $7,000
Packaging stage: (10,000 bars x $0.10) + (10,000 bars x $0.05) = $1,000 + $500 = $1,500
The total direct cost for all stages is $19,500. To calculate the total indirect cost, assume that the cost driver for each stage is as follows:
Mixing stage: machine hours
Molding stage: labor hours
Packaging stage: square footage
Assuming that the overhead costs for the plant are $50,000, and the cost driver for each stage is as follows:
Mixing stage: 1,000 machine hours
Molding stage: 500 labor hours
Packaging stage: 2,000 square feet
The indirect costs for each stage can be calculated as follows:
Mixing stage: ($50,000/12,000 machine hours) x 1,000 machine hours = $4,167
Molding stage: ($50,000/20,000 labor hours
#processcosting
#productpricing
#costing
The concept of Calculation of process cost will be much understood by the viewers
YOU CAN DOWNLOAD COSTING SHEET FORMAT FROM THIS PAGE
batramechanica...
Watch and follow this blog for Material Costing
batramechanica...
Watch and follow this blog for Process costing
batramechanica...
#processcosting
#process costing
#costing
manufacturingcost
operationcost
costingsheet
learntocalculatemanufacturingcost
learntocalculateproductcost
process costing
materialcost
manufacturingcost
costingsheet
productcost
learntocalculatemanufacturingcost
learntocalculateproductcost
newproductdevelopment
productpricing
processcost
costofproduction
directcosts
indirectcosts
overheadcosts
costallocation
rawmaterials
laborcosts
machinehours
laborhours
squarefootage
costdriver
weightedaveragemethod
FIFOmethod
physicalunitsmethod
activitybasedcosting
totalcostofproduction
sellingprice
profitmargin
competition
marketdemand
manufacturingcost
productionprocess
financialmanagement
costmanagement
Contact us for your product costing, machine capacity mapping, PPAP documents, feasibility study , new line setup details.
WhatsApp at 9996361294