 Explain how hybrid costing systems develop in relation to production systemsDevelop an

understanding for an operation costing systemsPrepare journal entries for an operation costing

systemsDescribed a Just-In-Time production systemsIdentify the major features of a Just-In-Time

production systemsExplain how Just-In-Time systems simplify job costingDescribed Journal entries

for Backflush Costing systems

 Hybrid costing employs some aspectsof both job-order and process costing. Job-order Costing Hybrid

Costing Process Costing (Products produced in batches) Distinct, identifiable unit of a product or

serviceMasses of similar product units or service units

 Overview of Operation CostingAn Illustration of Operation Costing

 An operation is a standardized method or technique that is perform repetitively regardless of the

distinguishing features of the finished goods.

Operation costing is hybrid costing system applied to batches of similar products. Each batch of

products is often a variation of a single design and proceed through a sequence of selected (though not

necessarily the same) activities or operations.

 Work Order 423Work Order 424Direct MaterialsWoolPolyesterSatin full liningRayon partial

liningBone buttonsPlastics buttonsOperation:1 Cutting clothuseuse2 Checking edgesusedo not use3

Sewing bodyuseuse4 Checking seamsusedo not use5 Machine sewing of collars and lapelsDo not

useuse

6 Hand sewing of collars and lapelsusedo not use

 For example;

Operation 1 Budgeted conversion cost rate = Operation 1 budgeted conversion cost/ operation 1

budgeted product units = $232,000/20,000 units = $11.60 per units

Work Order 423Work Order 424Number of blazers50100Direct material costs$6000$3000Conversion

cost allocated:Operation 15801160Operation 2400-Operation 319003800Operation 4500-Operation 5-

875Operation 6700-Total Manufacturing Cost$10080$8835

 Conversion cost $24,400Various accounts(such us wages payable and accumulated depreciation)

$24,400WIP, Operation 1$2,975Materials inventory control$2,975WIP, Operation

1$1,160Conversion costs allocated$1,160WIP, Operation 3$4,135WIP, Operation 1$4,135

 2. Direct Materials$2,9753. Conversion cost allocated$1,1604. Transferred to Operation 3$4,135Work

In Process, Operation 1

 JIT Production is a systems in which each component on a production line is produced immediately as

needed by the next step in the production line. In JIT production line, manufacturing activity at any

particular workstation is prompted by the need for that stations output at the following station.

 Production is organized in manufacturing cells, a grouping of all the difference types of equipment

used to manufacture a given productWorkers are trained to be multiskilled so that they are capable of

performing a variety of operations and tasksTotal Quality Management is aggressively pursuade to

eliminated defects.Emphasis is placed on reducing set up time, which is the time require to get

equipment, tools, and materials ready to start the production of a component or product, and

manufacturing lead time, which is the time from when an order is ready to start on the production line

to when it becomes a finished good.Suppliers are carefully selected to obtained delivery of quality-

tested parts in a timely manner

 Lower investment in inventoriesReduction in carrying and handling cost of inventoriesReduction in

risk of obsolescence of inventoriesLower investment in plant spaced for inventories and

productionReduction in set up cost and total manufacturing costReduction in cost of waste and

spoilage as a result of improved qualityHigher revenues as a result of responding faster to the

customerReduction in paper work

 In reducing the need for materials handling, warehousing, inspection of supplies, and other activities,

JIT systems reduce overhead costs. JIT systems also facilitated the direct tracing of some costs that

were formerly classified as over head. For example, the use of manufacturing cells make it easy to

traced materials handling and machine operating costs to specifics product or product families made in

specific cells. These costs than become direct costs of those product. Also, the use of multiskilled

workers in these cells allows the costs of set up, minor maintenance, and quality inspection to become

easily traced, direct costs.

 An alternative to the sequential tracking approach in many costing systems is to delay the recording of

journal entries until after the physical sequences have occured.

 Backflush costing (also called delayed costing, end point costing, or post deduct costing) describeds a

costing systems that delays recording changes in the status of a product being produced until good

finished units appear, it then uses budgeted or standard costs to work backward to flush out

manufacturing costs for the units produced.

 In companies that adopt backflush costing, the following occurs:Management wants a simple

accounting systems. Detailed tracking of direct costs through each step of the production systems to

the point of completion is deemed unnecessaryEach product has a set of budgeted or standard

costsBackflush costing reports approximately the same financial results as sequential tracking would

generate