Question

In a process costing system, the costs are added:

a) As the individual job moves through production.
b) As each process or step in the production cycle occurs
c) Once at the beginning of the production process.
d) None of the above

Answer 1

In a process costing system, costs are added as each process or step in the production cycle occurs, which aligns with the continuous flow of goods through production stages.

Step-by-step explanation:

In a process costing system, the costs are added as each process or step in the production cycle occurs. This method reflects the continuous flow of costs corresponding to the passage of goods through the production processes. Since costs are tracked by process rather than individual jobs, this results in an accumulation of costs at each stage of the manufacturing process, with an eventual transfer of these accumulated costs to the next stage until the product is completed. Looking at the way costs behave, we can categorize them into fixed costs and variable costs. Fixed costs are those that are incurred before any production begins and do not change with the level of production. On the other hand, variable costs are those that vary with the level of production, often showing diminishing marginal returns, meaning the marginal cost of producing additional units increases.