Question

Discuss how an operation costing system accumulates and assigns the costs of direct-material and conversion activity in a batch manufacturing process.

Answer 1

The operating costing system accumulates the manufacturing costs through a separate account called Work-in Process Inventory account where costs of direct materials, direct labor and manufacturing overheads which are assigned to the production of specific job or process or batch are shown under this account.

The conversion costs include all direct labor costs and manufacturing or factory overheads costs. After the manufacturing is completed of a specific job or batch, the costs that are accumulated under the work-in process inventory account belong to that specific job or batch or group of jobs or batches are transferred to finished goods inventory and such costs are also called the cost of goods manufactured.