Process costing

Process costing averages total period production costs across all equivalent units processed, suited to industries making large volumes of identical output. Costs are accumulated by department rather than by individual job.

ByHoang TruongUpdated June 30, 2026

FrameworkProcess costing

See it move

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A division tree shows the process-costing unit cost of €12 at the root, derived by dividing the left branch — period cost of €120,000 — by the right branch — 10,000 equivalent units. The tree captures the averaging logic of process costing: all costs accumulated in the department for the period are pooled and then spread evenly across the equivalent units produced, yielding a single cost per unit.

Where it fits

SubjectCost AccountingCoreTopicJob & Process CostingCore

The formula

LaTeX

EU = UC + WIP \times c

Variables

$E U$: Equivalent units of output (units)
$U C$: Units completed and transferred out (units)
$W I P$: Units in ending work-in-process (units)
$c$: Percentage of completion (decimal)

LaTeX

CPU = \frac{TC}{EU}

Variables

$C P U$: Cost per equivalent unit (€ per EU)
$T C$: Total department cost for the period (€)
$E U$: Total equivalent units (units)

Check yourself

PracticeCORE

Department B incurs €84,000 of conversion cost in a month. It completes 12,000 units and has 2,000 units in closing work-in-process that are 50% converted. There is no opening work-in-process. What is the conversion cost per equivalent unit?

Select an answer to check your understanding.