Question

Question: Companies such as Apple commonly prepare a process cost summary. What purposes does a process cost summary serve?

Short answer

The primary purpose of the process cost summary is tocalculate the cost incurred by each department of the business entity, to determine the department’s performance, and to identify the departments that need improvement.

Step-by-step solution

Definition of Process Costing

The costing method used by the business entity to allocate operational costs to the goods produced in mass is known as process costing. It is used by the business entity whose product passes through different processes.

Process cost summary

A report prepared by the business entity provides information about expenses incurred in each process. In this report, along with the process expenses, the business entity includes the units produced and the cost allocated to each unit produced. It provides a summary of the activities of an individual process.

Purpose of process cost summary

1. Process cost summary provides information about the cost incurred and helps prepare the financial statement.
2. Identification of the cost charged by each department.
3. It helps in the determination of the performance of each cost center.
4. It helps in the identification of the department that are incurring unnecessary costs.