Skip to content

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

Which statement best describes operation costing as used for batch production of items such as garments or auto parts?

Operation costing charges material costs to each batch directly, while conversion costs are collected operation-wise and absorbed into the batches using a predetermined rate per unit or hour. It combines features of batch costing and process costing, so it is not a pure process method.

  1. AMaterial costs are charged to each batch, while conversion costs are collected by operation and absorbed into batches at a predetermined rateCorrect
  2. BAll costs are collected by process and averaged over total output without regard to batches
  3. CAll costs are accumulated against each customer order and no operation-wise cost is computed
  4. DOnly conversion costs are recorded and materials are treated as period expenses

Explanation

Operation costing is a hybrid of job/batch costing and process costing. Material costs are identified with specific batches, while conversion costs are accumulated for each operation and charged to batches using a predetermined rate. The other options describe pure process costing, job costing, or an unacceptable treatment of materials.

Did you get it right without looking?

One question tells you little. A timed set on Process & Operation Costing shows your real accuracy, how long you take and where you lose marks.

Practise Process & Operation CostingFree diagnostic mock

More Process & Operation Costing questions