Advantages and disadvantages
Advantages of process costing
1) The cost can be calculated at any periodic interval.
2) It is a simple, user friendly and affordable method.
3) It provides for effective management control.
4) It provides for the application of standard costing.
5) It enables quoting of prices.
Disadvantages/limitations of process costing
1) This is a historical method of costing.
2) Calculation of work-in-progress is based on estimation, which is not n accurate
method.
3) The costs of different products in a single process are calculated based on
approximation, this fact reduces accuracy.
4) An error at one process will get carried down to all the further stages.
5) Division of cost elements in a situation of multiple products in a process is
difficult.
6) Unfinished units of a process, at the end are expressed in terms of completed
units. This induces an element of subjectivity.
