Chapter 17: Process Costing

Let's say we develop a process for creating Simple Meals in Rimworld. Now, Simple Meals are easy to mass produce, it's far better to consider their production a perpetual process than a core project; if you want to measure and keep track of them, you should use Process Costing.

There are three questions that Process Costing wants to solve. First, how many Simple Meals do you have at the end of the month/season/year? Second, how far along are the meals in progress? Third, how much exactly does a Simple Meal cost over the course of the process?

In particular for that last problem, there are many ways to value inventory, and depending on the method used, it would affect the measurable wealth of your economy (if Rimworld required you to write your own wealth reports), which in turn could affect enemy spawns and Pawn happiness. This is especially relevant if the cost of any particular ingredient during the process suddenly fluctuates.

The example given by the book is a story of if prices drop. Of the methods mentioned, FIFO, LIFO, and Weighted-Average, let's assume that our colony reports in FIFO. Simple Meals are for the most part mass produced through Corn, limited largely through a low-skill Grower. Let's assume we recruit a high-skill, high-passion Grower, and the "cost" of producing Corn drops. Even though the "Cost" of producing Simple Meals now has effectively dropped, FIFO requires us to maintain the costs of all of our old inventory before the newest Grower was hired. If this was a competitive Market, and all of the other Factions had their own influx of High-Skilled Growers, our own Colony's Simple Meals would look extremely expensive since we must carry through the costs of our old Grower's more expensive Corn, even though the Simple Meals we are producing are cheaper than ever.

Learning Objectives:

1. Identify the situations in which process-costing systems are appropriate
2. Understand the basic concepts of process costing and compute average unit costs
3. Describe the five steps in process costing and calculate equivalent units
4. Use the weighted-average method and the FIFO method of process costing
5. Apply process-costing methods to situations with transferred-in costs
6. Understand the need for hybrid-costing systems such as operation costing