Question
Read the short article on the advantages and disadvantages of process costing.
Identify which of these advantages/disadvantages you think is the most important and relevant for today's managers.
Provide a full paragraph that explains rationale.
Flexible Business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Business owners typically look for ways to refine a production process to increase cost savings. Eliminating redundant processes often achieves this goal. Adding a process allows companies to produce slightly different goods or improve product quality. Management accountants may review the amount of materials and labor used in each process to determine if any costing savings is available in the productions system. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Ad [> X Wasting Time on Another Audit? We're Professional Auditors with Experience Performing Thousands of Audits. Cost Errors Process costing can create cost errors in the production system. Production cost errors often represent a significant disadvantage for cost accounting systems. Process costing does not use direct allocation to apply business costs to individual goods. Direct allocation costing applies a specific amount of raw materials, production labor and manufacturing overhead to goods or services. Process costing may allow non-production costs to be included in the total process cost. Including non-production costs will arbitrarily increase each item's cost; this also increases the consumer product price. Management accountants may also leave out production costs and create under-costed products. Under- costed products usually result in lower business profits because goods are actually more expensive than actually reported. Equivalent Units Management accountants must calculate equivalent units in the process costing system. Equivalent units represent the amount of unfinished goods left in a process at the end of an accounting period. This calculation may only be a best guess or an estimate by management accountants. This information is reported as the work-in-process on a company's balance sheet. Inaccurate work- in-process accounts may also result in distorted finished good totals. This creates a difficult process for managing inventory and determining how many products the company has to sell in the open marketplace. What Are the Advantages & Disadvantages of Process Costing? by Osmond Vite-z Many companies use some type of .. system to determine the minimum value - " of produced products. Process costing is an allocation system companies use to allocate cost for homogeneous items produced by a company. Homogeneous products represent items that are very similar or indistinguishable from each other. Lumber, soda pop and chemical products are a few examples of homogeneous products. Process costing provides companies with a few advantages and disadvantages. Ad [b x Keiser University Prepare for a Career with a Health Care Degree from Keiser University! Keiser University Easy to Use Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Business owners allocate business costs according to the number of processes each good travels through in the production system. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced
