Pretco fabricates metal display racks and uses process costing to record costs in their three departments Cutting, Assembly, and Finishing department. Product costing is commonly used to record product costs where products are created in sub-assembly from the start to the end (Hansen, 2009, p. 173). Pretco finds process costing particularly useful in recording product costs.
Once a design is agreed with a customer, fabrication of the metal display rack starts at the cutting department where all pieces required for the display rack are cut. At the end of the process, the metal racks are 70% complete as to material and 30% complete as to labor and other overheads.
Next, the cut metal pieces are taken to the assembly department where they are assembled through welding, folding, or riveting. At this point, the assembled rack is 90% complete as to material and 70% complete as to labor and other overheads. The Assembled metal racks are then taken to the finishing department where they are grinded to give the metal display racks a smooth finish without any rough edges or surface. The metal display racks are then polished before applying a grey metal primer coat. Once the primer dries, a final coat is applied to the metal display racks according to the color preferred by the customer.
At the end of the process, the finished rack is 100% complete as to all materials and 100% complete as to labor and other overheads. Since all metal racks are made to customer specification, there is no work-in-progress either at the start or at the end of any process, and all units started are completed in the same period.
Works Cited
Hansen, Don R., Maryanne M. Mowen, and Liming Guan. Cost Management: Accounting and
Control. Mason, OH: South-Western, 2009. Print.
