Accounting Assignment Help With Managerial Uses Of Process Cost Analysis

7.6 Managerial Uses Of Process Cost Analysis

From the above discussion, we have already understood that process cost analysis generates cost information to appreciate

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- cost of various intermediate products

- cost of each joint product adjusting for revenue of by-products

- cost of incomplete process stock

These cost data help in arriving at decisions whether to sell intermediate products or process them further. Often each process has independent production facilities. Thus the profitability of downstream or upstream process can be established through process cost analysis.

Consider the following situation:

managerial uses of process cost analysis

When process-II uses output of process-I which is available in the market at $ 90 and there is no substantial risk involved in the supply condition, the management may not like using upstream process or backward integration.

Take another example:

upstream process

In the above example management may not like to go for forward integration. However, certain processes in sugar milling and breweries are integral part of the whole production which cannot be disintegrated. In such cases process cost analysis is used to understand the efficiency of each process. Process cost analysis also helps to evaluate performance of each process manager.

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