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Industries that are engaged in the manufacture of products that involve continuous operation or process are known as process industries. Process Costing represents a type of cost procedure for continuous or mass-production industries. Therefore, it is assumed that the same amount of materials, labor, and overhead is chargeable to each unit processed.

The cost of a unit at the end of any manufacturing process can be easily determined provided costs are accumulated on a process basis and a record of units produced is available. Process costing is adopted where the production flows from one process or department to another department till it is finally complete. Identical units are mass-produced using a series of processing operations. It is used by firms manufacturing products in a more or less continuous flow, without reference to specific orders or lots. 
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Process Costing is used to determine the cost of a product at each operation, process, or stage of manufacture. This method of costing is used in industries engaged in the manufacture of paints, chemicals, textiles, rubber, steel, glass, cement, oil refineries, food processing, distilleries, confectionery, paper, dairy products, etc.

Features of Process Costing:

Costs flow from one process to another: Direct materials, direct wages, and factory overheads are incurred. These are charged to the process accounts. The cost of the finished output of one process becomes the raw material for the next process.
Equivalent production computation: The units which are incomplete at each stage of production are converted into equivalent production based on the degree of incompleteness.
Average unit cost computation: An average cost per unit is calculated by the division of the total costs incurred in a period by the period’s output.
Normal and abnormal losses: Loss of materials arises due to evaporation, chemical reactions, and scrapping. These may be normal or abnormal and are defined and accounted for. Work in progress at year-end: At the end of each accounting period, there remains a stock of semi-finished goods or work in progress. This is because the manufacturing process is continuous.  Apportionment of the process cost is done between the finished output and semi-finished output when each accounting period comes to an end. The emergence of more than one product: At the end of different operations or processes, it is possible that more than one product may be produced. However, it depends upon the sales value. These are either known as ‘joint products’ or ‘by products’.
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