Certain difficulties likely to be encountered in actual practice should be mentioned before leaving the subject of process cost accounting procedures:
1. The determination of production quantities and their stages of completion present problems. Every computation is influenced by these figures.
Since the data generally come to the cost department from an operating foreman often working under circumstances that make a precise count difficult, a certain amount of doubtful counts and unreliable estimates are bound to exist. Yet, the data submitted form the basis for the determination of inventory costs.
2. Materials cost computations frequently require careful analysis. In the illustrations, materials cost is generally part of the first department's cost. In companies of certain industries, materials costs are not even entered on production reports. When raw materials prices are influenced by fluctuating market quotations, the materials cost may be recorded in a separate report designed to facilitate management decisions in relation to the fluctuating raw materials market.
3. The discussion of lost units caused by shrinkage, spoilage, or evaporation indicates that the time when the loss occurs influences the final cost calculation. Different assumptions concerning the loss would result in different costs of the unit in a department which, in turn, affects inventory costs, the cost of units transferred, and the completed unit cost.
Another consideration involves the possibility of treating cost attributable to avoidable loss as an expense of the current period.
4. Industries using process cost procedures are generally of the multiple product type. Joint processing costs must be allocated to the several or many products resulting from the processes. Weighted unit averages or other bases are used to prorate these joint costs to the several products.
If units manufactured are used as a basis for cost allocation, considerable difficulties arise in determining accurate unit costs. Additional clerical expenses are necessary if the labor-hour or machine-hour basis for charging overhead to process is used. Management must decide whether economy and low operational cost are compatible with increased information based on additional cost computations and procedures.
It should be noted that some companies use both job order and process costing procedures for various purposes in different departments. This is particularly true when a parallel or selective cost flow format is required.
Each system or method employed by a company must be based on reliable production and performance data which when combined with output, budget, or standard cost data will provide the foundation for effective cost control and analysis.