Final answer:
Operation costing is a hybrid of order and process costing, combining elements of both to track product costs more accurately in certain manufacturing environments.
Step-by-step explanation:
Operation costing is a hybrid of order and process costing. It combines elements of both job order costing and process costing. In operation costing, direct materials are often added at specific points in the production process, similar to process costing, while other production costs, such as labor and overhead, are assigned to batches of products, which is indicative of job order costing.
This approach is especially useful when the product's direct materials are a significant portion of the total cost and when there is a continuous flow of units. It's important to understand various costing measures, including fixed cost, marginal cost, average total cost, and average variable cost, as they each provide unique insights that are essential for a firm's budgeting and financial strategies.