Costing by Departments
In manufacturing firms, production can take place in several departments. Each department performs a specific operation leading to completion of the product. For example, the first department typically performs the starting phase of work on the product, such as cutting, stamping, molding, or shaping the product or component parts. When the work in the first department is completed, the units are transferred to a second department. The second department then performs its work, such as assembling, sanding, painting, or packaging, and transfers the units on to the next department, which performs its work, and so forth, until the units are finally completed and transferred to the finished goods storeroom.