Question
Asked Jan 21, 2020
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Companies can choose from different costing methods: process/product costing and activity-based costing. Think about a company, what are the differences between the two costing methods, and how do these apply to your company?

 

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Expert Answer

Step 1

Different methods of costing are used in different companies for assigning cost to the manufactured product. These methods include process costing, product costing, absorption costing and activity-based costing.

Step 2

Product costing/process costing: These are the traditional methods of assigning cost to the product. Under product costing, the cost of direct material and direct labor is assigned on the basis of number of units produced by the company. Overhead cost is charged on the basis of per hour or per unit.

Example: if a company manufactures two products i.e., A and B. 50 units are produced of product A and 50 units of product B is produced. The cost of rent is $50,000. Production of A uses 80% of space and production of B uses 20% of space. Cost of rent will be assigned in the 50:50 proportion to the cost of product A and product B.

Process costing is a technique under which the cost is assigned to different processes through which the product passes...

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Accounting

Cost Accounting

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