Question

When determining the cost of a manufactured good under an operation-costing system, a company would:

a. trace direct-material cost to each product produced and use a predetermined application rate for conversion cost.
b. trace actual conversion cost to each product produced and use a predetermined application rate for direct material.
c. use a predetermined application rate for both direct-material cost and conversion cost.
d. trace direct-material cost and actual conversion cost to each product produced.
e. often switch to a job-costing system to simplify recordkeeping procedures.

Answer 1

A company would trace direct-material cost to each product produced and use a predetermined application rate for conversion cost.

Step-by-step explanation:

In this operation costing system the cost of the operation and the process cost are in parallel with the conversion cost and when when a company uses this they trace the direct material cost to each of the product produced and they predetermine the application rate of the conversion cost

The raw materials are manufactured in one way and the individual products are manufactured in another way and hence there is a mix of both the jobs and the prices may vary. Hence to avoid this confusion operation costing system was introduced