Operational Costing

Operational costing is a technique that blends concepts from job order costing and process costing and is applied to a batch production of homogeneous units processed through a sequence of activities. Work is organized by batch, similar to job order costing. Each activity (or each unit within a batch) is treated exactly the same, similar to process costing. Work orders initiate production for each job in operational costing. Materials are specific to the work order. Conversion costs (direct labor and manufacturing overhead) are applied on an average cost per unit basis, similar to process costing. See also job order costing and process costing.