Is it possible to combine job order costing, process costing, and activity based costing in one statement?


#1

It is fairly straight forward to combine process costing and activity based costing in one statement. Is it possible to combine job order costing, process costing, and activity based costing in one statement? If so, please provide an example.


#2

The period manufacturing costs of a company is comprised of $2,000,000 in direct materials, $1,000,000 in direct labor, and $500,000 in overhead, resulting in 7,000 units of product. Manufacturing operations is consisted of two processes, machining and assembly. Machining takes up 40% of direct materials, 60% of direct labor, and 50% of overhead. Provide a hybrid manufacturing cost statement, containing combined activity based costing and process costing.

Yes it is possible to summarize Job, process and Activity costing in one place with a hybrid system of costing, depending the requirement of the organization. For example, there is a Garment that produces certain types of pants. Now, someone brings a certain consignment of new design Pants. So, as the workers get on their work, there might be two types of pants that the garment will be manufacturing. But still, the basic process/activities involved in manufacturing pants will be the same; the pants cutting might go in different phases, like cutting, stitching and finishing, as like the other pants. While at last, the differentiation is made on the pants on finishing activity. Despite being on same flow of activities, the new lot might be consuming more cost at different department; hence the total cost of the consignment is the sum of the cost used on the different departments and the direct cost involved in manufacturing in different department. According to Dan, this system is used when there is similar manufacturing technique but with varying material cost.

In example below, Job A and B goes through same process but A has better material and finishing as compared to B. The material is different but the both goes through same process to get ready but at last, on finishing department, A gets extra materials added for extra finishing. Here, according to Job costing, Different materials or Labor cost are assigned. We have also activities wise Overhead and a department wise overhead. Hence, all three process looks justified

Job A Job B
Direct Material (Cutting+Stiching +Finishing) 20,000 10,000
Direct Labor (Cutting+Stiching +Finishing) 10,000 10,000
Overhead Cutting 3,000 3,000
Stiching 3,000 3,000
Finishing 5,000 1,000
Total Cost 41,000 27,000

"A hybrid system allows the job order costing feature of tracing direct material to a specific job to be combined with process costing feature of averaging labor and overhead costs over all homogenous product to derive total cost". Basing on this, the cost of the materials are divided into several departments.

Direct Material

Machining= 0.4*2,000,000
= 800,000

Assembly= 0.6*2,000,000
= 1,200,000

Direct Labor

Machining= 0.6*1,000,000
=600,000

Assembly= 0.4*1,000,000
=400,000

Overhead

Machining= Assembly = 0.5* 500,000
=250,000

Machining Assembly Total
Direct Material 800,000 1,200,000 2,000,000
Direct Labor 600,000 400,000 1,000,000
Overhead 250,000 250,000 500,000
Total 1,650,000 1,850,000 3,500,000

Assembly OH = Machining OH= $500,000/7000
= 71.43

Cost per unit in Assembly Department = $1,850,000/7000
= $ 264.28

Cost per unit in Machining Department = $1,650,000/7000
= $235.72

Combined activity Costing= Cost per unit in Assembly Department + Cost per unit in Machining Department
=$264.28+ $235.72
= $500