process costing

process costing

a system for determining the cost of products made in a PROCESS PRODUCTION plant like an oil refinery. The continuous nature of such a process and the uniformity of the products emerging from it make it difficult to identify specific units of output. The cost of any particular unit must, therefore, be taken as the average cost of manufacture over a period. Process costing is further complicated by the tendency to experience process wastage from chemical reaction or evaporation and the production of waste products which have to be allowed for in costing products emerging from the process. Furthermore, in making the main product, BY-PRODUCTS may arise from the production process, making it difficult to determine the respective cost of main and by-products since they result from common expenditures on raw materials and processing of these materials. See BYPRODUCT PRICING.