Hybrid Costing ACG 4361 3-2 Prepared by Diane Tanner University of North Florida 3-2

Assigning Costs to Cost Objects All 3 methods have the same purpose  to accumulate total product costs and to assign those costs to each unit manufactured Direct materials –Traced Direct labor – Traced Manufacturing overhead - Allocated Job Costing Homogeneous Direct materials –Traced Direct labor – Allocated Manufacturing overhead - Allocated Operation Costing Unique Process Costing Direct materials – Allocated Direct labor – Allocated Manufacturing overhead - Allocated

Operation Costing Method A common type of hybrid costing Applicable for products in which Materials differ between products The same labor and overhead costs are incurred for all products Examples Example Only the materials (ingredients) differ between each of the flavors

Operation Costing Approach Direct materials Trace actual costs Conversion costs Allocate conversion costs Determine CC rate = Estimated direct labor cost + Overhead cost Estimated activity CC rate × Actual activity = Conversion cost allocated

Operation Costing Example Chief Deli creates deli platters for catering services. The deli platter orders require the same assembly operations but different ingredients. The company uses operation costing and assigns conversion costs based on the pounds of meat used. The following information was available for May orders:   Order 324 Order 328 Total Pounds of deli meats 450 750 1,200 Cost per pound of deli meat $3.80 $4.50 Direct labor hours 140  160  300 Labor cost per hour $15.00 Total production overhead costs $2,400 Conversion costs rate:           Direct labor: 300 × $15.00 $4,500         Overhead: 2,400 Total conversion costs to be allocated $6,900 Cost driver - pounds of deli meat 1,200 $5.75 per pound of deli meat Order 328:         Direct materials  750 × $4.50 $3,375       Conversion costs: $5.75 × 750 4,313 Total cost of order 328 $7,688

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