can process costing be used for a service organizationSoluti

can process costing be used for a service organization?

Solution

Process costing is a method of costing in which manufacturing costs are assigned to the units produced. It is used in cases of mass production when similar or the same type of goods are produced.

In services, process costing can be used, only if the same type of service is being provided by the organization. Take the example of an accountancy and audit firm. It has 2 divisions - (i) audit services (ii) tax complaince services. The audit department is responsible only for providing audit services. After the audit is completed, the tax complaince services are provided. (a client has to avail both audit and tax services to maintain its financial books) Under process costing all costs towards audit will be recorded for a given period and will be divided by the number of clients served. This will give the cost per client figure and this cost will become the input for the tax compliance department.