Process Cost Flows Transcript - BC Bookkeeping Tutorials|

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Process Cost Flows Transcript

Costing Methods > Process Costing > Process Cost Flows
Recall in a job costing system, direct materials, direct labor, and applied or estimated manufacturing overhead, are posted to individual job records. When the total of all the job records are added together this represents work in process.

The cost remain grouped in work in process, by job, until they are completed. Then they are transferred to finish goods inventory. When sold the job costs are transferred to cost of goods sold.

So job costing is very neat. We take materials, apply labor and overhead, and deliver completed products to our customers all wrapped up in a nice neat package.

Process costing, in contrast, is kind of messy.

The concepts are still the same. Labor and overhead are applied to materials to create finished products but there are significant differences.

Process costing is a series of manufacturing processes where materials and conversion costs are added in each process. Costs in each process are accumulated and transferred to the next process once the first process is completed. Costs from new processes are added as products move through the production process. Each time having additional costs added as new processes are completed.

Costs are transferred to finished goods inventory only from the WIP inventory of the final manufacturing process. This cost is known as the cost of goods manufactured.

Finally when products are sold, costs are transferred out of finished goods inventory and into costs of goods sold.

So this past summer I was in Hershey, Pennsylvania and took a tour of their a chocolate production plant. Let's look at some of the footage and how it applies to process costing. You'll see over 10 processes with conversion costs being added all the time. All of the machinery that you see, well, that's overhead - that's conversion costs.
In several of the processes, materials are added as well.

So for the visual learners, I hope this helps you understand process costing and go ahead and, you know, enjoy my family home movies.

Well girls, let's not get ahead of ourselves. It's true that milk is an important part of the process but let's start at the beginning, here at the Hershey Factory where the cocoa beans arrive from tropical areas all over the world.

From here the beans are sorted as computers supervise the process, sending the cocoa beans through cleaning machines like the one on the right.
Any dried pods, stones or other foreign matter are carefully removed. Hershey's quality standards are of utmost importance to us and only after the beans
are cleaned and screened are they sent on our blending machines.

Cocoa beans have different flavors depending on where they're grown and blending machines, such as those on the left, combine beans from various countries in just the right proportions to maintain that unique Hershey's flavor. With the beans blended, they're then sent ahead to be roasted in large revolving roasters, like this one. The roasted cocoa beans are then ready to move on to the next stage of the process.

A process that will begin to transform plain cocoa beans into Hershey's milk chocolate. It begins right up ahead with a process known as breaking. With the beans now roasted, they arrive here at the breaking chamber where the shells are shattered into tiny fragments. What's left is called, "the nib," the part of the bean actually used to make chocolate. The nibs now pass through the milling machines, as seen on the left. This grinding process generates extreme heat which melts the nib into a liquid called chocolate liquor. Of course, this liquid has no alcohol content. This is the liquid from which all chocolate is made.

Next, this large press machine is used to squeeze cocoa butter from the chocolate liquor. This cocoa butter will be added back later in the process to make the chocolate smooth and creamy.

Well, now we come to that all important element, milk, and who better to tell us about it than the experts themselves: Well, the gals are right. Milk is how Hershey's chocolate gets its special flavor and the extra added nutritional value. As the gals, say, "It's MOO-tritous." In fact, 100s of farms around this region and 1000s of cows supply over a quarter of a million gallons of milk, each and every day.

We're now in central blending. It's the heart of the Hershey's chocolate-making process. Here milk, sugar and chocolate liquor are brought together and mixed in just the right proprotions to create that special Hersey's taste. As the milk and sugar is combined with cocoa, it's mixed together until it becomes a smooth blend of milk chocolate, but we're not yet.

From here, the liquid chocolate leaves the large containers in this chamber where it will be dried once again. Yes, that's right. This liquid mixture is now conveyed to dryers such as the one you see on your left. The dryer removes excess moisure which results in chocolate crumb.

The machine up ahead adds cocoa butter into the mix which transforms it into a smooth chocolate paste ready for refining.

What's that wonderful smell? That's right, after all that shaking, breaking, baking and flaking, we're finally coming up with Hershey's milk chocolate.

But, there's still a ways to go before it's finished. On your left is a series of roll refining machines. The refining process combines the chocolate until it reaches a uniform and smooth consistency. Next, as seen on your left, the chocolate is further refined by a unique process called, conching. This heavy rollers refine the chocolate for up to 72 hours, until it reaches a silky, liquid texture. The material that leaves the conching process is called chocolate paste. These machines supply production lines with over 1 million pounds of chocolate paste per day.

Now, after all that effort, we're finally ready to make our Hershey's chocolate bar.

Here on your right, chocolate bars are leaving the molding line. They are then cooled and removed from the molds - the final step before being wrapped.

And with our milk chocolate made to perfection, we then add nuts, almonds and other extras, to create a world of wonderful chocolate treats. Here you see the completely automated wrapping machines, putting the finishing touch on Hershey's world famous chocolate and candy products.

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