CA Intermediate · Cost and Management Accounting · Process & Operation Costing
Which of the following best describes operation costing as distinguished from process costing?
Operation costing applies to standardised products made in batches where each batch uses different materials. Material cost is traced to the batch, whereas conversion costs are accumulated for each operation and averaged over units. It is therefore a hybrid of job and process costing.
- AIt is used where production is continuous and all units pass through identical processes with no variety
- BIt is used for standardised products made in batches, where materials are specific to each batch but conversion costs are averaged per operationCorrect
- CIt is used only for service organisations such as hospitals and transport firms
- DIt is used where each job is separately identified and costed on a customer order basis
Explanation
Operation costing is a hybrid method suited to standardised products made in batches. Materials are charged batch-wise because they differ, while conversion costs are collected per operation and averaged. Option A describes pure process costing and D describes job costing.
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