Question

Write briefly about cost categories in the process costing systems with examples.

Answer 1

There are Three types of Cost Categories in Process Costing System. They are:

• Weighted average Costs
• Standard Costs
• FIFO costing

1. Weighted Average Costs: It groups costs together, then assigns these collective costs to the total units produced.Calculation of Weighted average cost per unit = cost of goods available for sale ÷ number of units available for sale.
2. Standard Costs : Standard costs are planned or budgeted costs, rather than actual, realised costs.The expected cost is then compared to actual costs, and the difference is charged to a variance account.
3. FIFO costing : It is used when there are significant changes between production periods and creates layers of costs to differentiate between units started in the previous production period from units started in the current period. The cost per unit is calculated based on the cost of goods used first in the production.