ECONOMICS

Detailed explanation-1: -Process costing:This is the accumulation of labor, material and overhead costs across departments or entities, with the total production cost then being allocated to individual units. Process costing is used when large quantities of the same product are manufactured, usually in long production runs.

Detailed explanation-2: -As their names indicate, direct material and direct labor costs are directly traceable to the products being manufactured. Manufacturing overhead, however, consists of indirect factory-related costs and as such must be divided up and allocated to each unit produced.

Detailed explanation-3: -Manufacturing overhead costs are called indirect costs because it’s hard to trace them to each product. These costs are applied to the final product based on a pre-determined overhead absorption rate.

Detailed explanation-4: -Manufacturing overhead refers to all those costs that are NOT part of direct labor or materials. Therefore, manufacturing overhead costs are indirect and include charges such as: Factory rent and utilities.