Accounting for Decision Makers -Discussion Question - Assignment Example

Accounting for Decision Makers Accounting for Decision Makers Most production firms usually tie their production costs to specific products or processes. Process costing refers to a type of cost accounting that traces, accumulates and allocates direct and indirect cost of production process (Lal & Srivastava, 2009). Process costing is mainly used where an organization engages in mass production and the cost for each product is assumed to be equal to the cost other products (Lal & Srivastava, 2009).

Reviewing the case of towel manufacturing business, recycled office paper is used as the raw material. The recycled paper passes through a process that eliminates unwanted materials such as staples plastic windows hidden in envelopes. The paper is passed through another stage that separates ink from the pulp. The pulp is then compressed, bleached and fortified then transformed into paper towels. All the phases or processes involved in producing paper towel involve costs, which are ascertained at the end of every month.

The costs are then allocated to the total number of towels produced within the month. For work in progress (incomplete towels), the total cost is obtained by multiplying sum of the units of incomplete towels by percentage of towels already completed. The resultant value is then aggregated with total units to obtain monthly cost of production. Process costing provides a realistic means of ascertaining product costs in many industries. ReferencesHow it’s Made Paper Towels (SoleFerry). (2013).

How it’s Made by Discovery Channel. Retrieved on April 30, 2015 from https://www.youtube.com/watch?v=I3oplRgxaWILal, J., & Srivastava, S. (2009). Cost accounting. New Delhi: Tata McGraw-Hill.