A cost accounting method whereby an entity determines and accumulates direct costs, and allocates indirect costs of a production process (i.e., different stages of production). The costs are charged/ assigned to processes (operations) and averaged over produced units (usually in large batches). For example, a manufacturer may apply process costing for batches of units produced in an entire month.
Such a method fits operations where a finished product (homogeneous by nature) is the output of a continuous/ repetitive operation (e.g., paper mills, refineries, and chemical plants).
Process costing is distinguished from job costing, where costs are assigned to specific orders, jobs or projects.
