Define: Continuous Operation Costing

Continuous operation costing is a method of cost accounting that is used to determine the cost of production in industries where the production process runs continuously without interruption.

Continuous operation costing differs from traditional costing methods in that it takes into account the continuous nature of production and allocates costs based on the time the production process runs, rather than the number of units produced.

Industries such as oil refineries, chemical plants, and steel mills are examples of industries that often use continuous operation costing due to their continuous production processes.

Continuous operation costing provides a more accurate reflection of the actual cost of production in industries with continuous processes, leading to better decision-making and cost control.

Challenges of implementing continuous operation costing include the need for accurate tracking of production time, as well as the complexity of allocating costs in a continuous production environment.

Overhead costs are allocated in continuous operation costing based on the time the production process runs, using predetermined overhead rates.

Continuous operation costing can impact inventory valuation by providing a more accurate reflection of the cost of goods produced, which in turn affects the valuation of ending inventory.

Common cost drivers in continuous operation costing include machine hours, production time, and energy consumption.

A company can determine if continuous operation costing is the right method for their industry by evaluating the nature of their production process and considering the accuracy and relevance of the cost information provided by this method.