Desk Products Inc. mass produces wood desks. It maintains an advantage over its competitors by producing one desk in large quantities: 4,000 to 8,000 desks each month. Changes in the market are causing the CEO, Ann Watkins, to be prioritize keeping costs as low as possible. The most efficient method to respond to this concern is to use process costing.
A process costing system is used by companies that produce similar or identical units of product in batches and employ a consistent process. A job costing system is used by companies that produce unique products or jobs. Process costing systems track costs by processing department, whereas job costing systems track costs by job.
Process costing is best used in an assembly-line production environment. As you read this chapter, pay attention to how department costs are allocated based on the concept of equivalent units.
Be sure to pay close attention to the production cost report and the information it gives Ann Watkins. How does this improve her management decision making?