Answer: The correct answer is a) tends to parallel process costing with respect to the treatment of conversion cost.
Explanation: There are five main ways of applying costing techniques to the establishment of unit costs:
They fall into two main categories:
(a) Operation costing - This is the method of finding the average unit cost of a stream of identical cost units, further subdivided into:
- Process costing (relating to standardized goods)
- Service costing (relating to standardized services )
(b) Specific order costing - method of finding the cost of unique cost units. Sub-divided into:
- Job costing
- Batch costing
- Contract costing
So, let's discuss process costing and service costing.
Process costing: In some industries, the output produced emerges from a continuous process. For example, oil refining or food production. Process costing applies when standardized goods are produced from a series of interwoven operations but the issue that arises include attribution of materials costs and conversion costs to units of finished output and occurrence of losses during the process.
Service costing applies where monotonous services are provided either by an organisation or a particular cost centre within such organisation. As the name implies, service costing applies where there is no physical product, when the service is measurable in standard units, cost can be charged to activities and averaged over the units produced.
