Process Costing
Accounting glossary · Understand, connect, apply
Process costing accumulates production costs by process or department and averages them over output. It is suited to large quantities of similar units rather than individually distinct jobs.
Example
A department incurs 18,000 to complete 6,000 identical units with no opening or closing work in process. The simple average cost is 3 per completed unit.
Remember the difference
When work in process exists, equivalent units and the selected method matter. Materials and conversion costs may need separate calculations because they enter production at different stages.
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Published 4 November 2026. Prepared with AI assistance; examples are fictional and simplified for learning.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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