Operation costing is a popular type of accounting system, one that combines selected features of job-order and process-cost accounting.Required:A. Briefly discuss the basic features that are associated with an operation-costing system.B. Explain why a sweater manufacturer may have a need for an operation-costing system.
What will be an ideal response?
A. Operation costing is used by firms that produce different models of similar products. The products go through essentially the same manufacturing process, so conversion costs can be assigned in a manner similar to that used in process-costing systems. Materials, on the other hand, are unique to the individual goods being produced and, accordingly, the cost is assigned by batch (or in a manner similar to that used in job costing).
B. A sweater manufacturer produces multiple versions of its single product: sweaters. The garments likely incur roughly the same labor and overhead cost, with the major difference among models being in the areas of fabric, color, and patterns (i.e., materials). Thus, the material cost will often differ and the manufacturer should take these differences into account, not spread costs equally over all units produced as would be done in a process-costing type of procedure.
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