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CA Intermediate · Cost and Management Accounting · Process & Operation Costing

A garment maker uses operation costing for a batch of 200 units of shirts. Material for the batch costs Rs 60,000. All 200 units are cut at Rs 8 per unit and stitched at Rs 12 per unit, but only 120 units go through finishing at Rs 5 per unit. What is the total cost of the batch?

The batch costs Rs 64,600. Under operation costing each operation is charged only on units that pass through it. Material is Rs 60,000, cutting Rs 1,600, stitching Rs 2,400 and finishing on just 120 units Rs 600. Charging finishing on all 200 units would wrongly give Rs 65,000.

  1. ARs 64,600Correct
  2. BRs 65,000
  3. CRs 64,000
  4. DRs 61,600

Explanation

Each operation is charged only on the units that actually pass through it. Cutting = 200 x 8 = 1,600; stitching = 200 x 12 = 2,400; finishing = 120 x 5 = 600. Total = 60,000 + 1,600 + 2,400 + 600 = Rs 64,600. Rs 65,000 wrongly charges finishing on all 200 units.

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