Product Flow in Process Costing System:

A product can flow through a factory in numerous ways. Three product flow formats associated with process costing - sequential, parallel, and selective - are illustrated here to indicate that basically the same costing procedures can be applied to all types of product flow situations.

Sequential Product Flow:

In a sequential product flow, each item manufactured goes through the same set of operation, as illustrated below.

Work in Process Blending Department Materials Labor FOH*

→

Work in Process Testing Department Labor FOH*

→

Work in Process Terminal Department Labor FOH*

→

Finished Goods

*Factory Overhead
Materials are placed into production in the Blending Department, and labor and factory overhead are added. When the work is finished in the Blending Department, it moves to the Testing Department. The second process, and any succeeding processes, may add more materials or simply work on the partially completed input from the preceding departments, adding only labor and factory overhead, as in this example. After the product has been processed by the Terminal Department, it is a completed product and becomes a part of finished goods inventory.

Parallel Flow:

In a parallel product flow, certain portion of the work are done simultaneously and then brought together in a final process or processes for completion and transfer to finished goods inventory. As in the previous illustration, materials may be added in subsequent processes.

Selective Product Flow:

In a selective product flow, the product moves to different departments within the plant, depending upon the desired final product. For example, in meet processing, after the initial butchering process, some of the product goes directly to the Packaging Department and then to finished goods inventory; some goes to the Smoking Department and then to the Packaging Department and finally to finished goods inventory; Some goes to the grinding department, then to the packaging department and lastly to finished goods inventory. Transfer of costs from the Butchering Department involves joint cost allocation, discussed on By-Products and Joint Products Costing page.