Process costing is an accounting methodology used to trace and accumulate direct costs and allocate indirect costs of a manufacturing process. It is a type of operation costing that is used to ascertain the cost of a product at each process or stage of manufacture. Process costing is suitable for industries that produce homogeneous products and where production is a continuous flow.

In process costing, costs are assigned to products, usually in a large batch, which might include an entire months production. The method involves tracking the number of units passing through the production process during a given period, collecting cost information for each stage, and then using the collected information to calculate per-unit cost. This helps companies to estimate item costs by adding up the expenses of each step in the manufacturing process.

Process costing is appropriate for companies that produce a continuous mass of like units through a series of operations or processes. It is commonly used by companies that mass-produce very similar or identical products or units of output, such as those in the food processing, oil, and chemicals industries.

The importance of process costing lies in its ability to help companies keep track of where their money is being spent in the production and distribution processes. Understanding these costs is the first step in being able to control them. It is essential that a company chooses the appropriate type of costing system for their product type and industry.

In summary, process costing is an accounting methodology used to trace and accumulate direct costs and allocate indirect costs of a manufacturing process. It is suitable for industries that produce homogeneous products and where production is a continuous flow. The method involves tracking the number of units passing through the production process during a given period, collecting cost information for each stage, and then using the collected information to calculate per-unit cost. Process costing is appropriate for companies that produce a continuous mass of like units through a series of operations or processes.