Define process costing. [1]

Process costing is a cost accounting technique used to determine the cost of producing large quantities of identical or similar units of a product over a specific period. It is primarily employed in industries where production is continuous and homogeneous, such as oil refineries, chemical plants, food processing, and textile manufacturing.

In process costing, costs are accumulated by process or department rather than by individual units. The total cost for each process is divided by the number of units produced to determine the cost per unit. This method helps in allocating overheads, direct materials, and direct labor to each process and then to the final product.

Key features include:

• Mass production of identical units.
• Continuous production over time.
• Cost accumulation by process rather than by job or batch.
• Use of equivalent units to account for partially completed units.