Final answer:
The first step in the five step process costing procedure is to summarize the flow of physical units. This sets the stage for understanding the movement of units which entails subsequent cost computations like total cost, average cost, marginal cost, and cost per equivalent unit.
Step-by-step explanation:
The first step in the five step process costing procedure is to summarize the flow of physical units. This involves tracking the physical movement of units through the production process.
The subsequent steps after summarizing the physical flow include summarizing total costs to account for, computing output in terms of equivalent units, computing the cost per equivalent unit, and finally, assigning these costs to units completed and units in ending work in process.
In order to determine the cost structure for a firm, one calculates total cost, average variable cost, average total cost, and marginal cost.
Understanding these costs and how they relate to production volume is essential in process costing, which is used for operations where the units of output are standardized. Cost per unit of output can be measured as average cost (AC = TC/Q) or marginal cost (MC = ΔTC/ΔQ).