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

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

3. 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

4. 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

5. 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

6. The End