What is meant by the term process cost accounting?

Process cost accounting (PCA) is a tool used for strategic planning and analysis of overhead costs in a company. It involves analyzing individual business processes to assign them a specific portion of total costs. The aim is to distribute costs more fairly among the actual cost drivers, a concept known as activity-based costing. Identifying these cost drivers often reveals ways to streamline specific workflows, making PCA a method of both cost allocation and optimization.

PCA works by first defining subprocesses. These are assigned specific cost values, based on measurable factors such as duration, effort, or frequency. Whenever a subprocess is used, the corresponding cost rate is applied.

Implementing PCA is often complex and time-consuming. Data processing systems can assist with execution. Whereas companies once used Excel or basic IT systems, today’s standard involves ERP and warehouse management systems, which are already connected to operational processes and therefore ideal for tracking process-related costs. With access to both historical and real-time data, these systems allow for reliable insights and efficient, accurate cost accounting.