CHAPTER - 3

Job, process and operation costing

 Product costing is the process of accumulating and classifying costs and then assigning those costs to products.
 Product cost information is used for various purposes.
 The choice of a product-costing system depends on many factors, including the type of industry, the needs of
managements, and the nature of the product or service.
Cost Systems
The two extremes of product costing are usually termed job costing and process costing
Job Costing
 It is used by entities that make relatively small quantities or distinct batches of identifiable unique products
(services).
 Businesses using job costing include: Printing jobs at a printing Co., ship-builders, and Custom furniture
manufactures, Construction companies, Film-producing companies, accounting and law firms, advertising
agencies, Medical clinics, etc.
 Here an individual job is considered as a cost object. Sometimes a job consists of an individual product, and
sometimes it consists of a batch of products.
 Job cost information is used:
 To determine the profitability of individual jobs,
 To assist in bidding on future jobs, and
 To evaluate professionals who are in charge of managing individual jobs.
 Service organizations would most likely use job-order costing to assign and track costs to each client’s job.
Main features of job-costing
 Production is undertaken against customer’s orders.
 Each job has its own characteristics and satisfies the requirement to the customer.
 Duration of job is normally short. However, a large order may extend beyond one year.
 Identity of each order is maintained through out the manufacturing process.
 Only prime costs elements are traceable and overheads are apportioned to each job on some suitable basis.

Block concepts of Costing Systems

 Cost Object (cost objective) – anything for which a measurement of cost is desired
E.g. product, department, branch, a service, a job, a customer etc
 Cost Accumulation
 The collection of cost data in some organized way by means of an accounting system.
 We may collect costs by some natural classification such as materials or labor or by activities performed
such as order processing or machine processing costs.
 Cost Pool
 A group of individual costs that is allocated to cost objects using a single cost driver.
 Cost pools can range from broad, such as all costs of all manufacturing plant, to narrow, such as the cost
of operating metal-cutting machine.
 Cost Allocation
 The assignment of indirect costs to a cost object.
 Cost Allocation Base
 Indirect mfg costs are assigned to cost objects by allocation. Cost allocation base is the factor that links
in a systematic way an indirect cost or group of indirect costs to a cost object.
 A cost allocation base can be:
 Financial (DL cost, material costs)
 Non-financial (number of machine hours, DL hours, units of production).
 In machine intensive operations a large part of the FOH cost is associated with operating the machinery
making probably machine hour a proper base.
 In labor intensive operations the proper base is probably DL cost or DL hours.

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  If OH is mainly material oriented. Dominated by costs associated with procuring and handling material,
then materials cost may be a suitable base.

Accounting Procedures for Job Order Costing System

Job Costing in Manufacturing Firms
 Let us examine the basic records (documents) used in a job costing system.
Job-cost sheet
 It is document that records and accumulates all costs assigned to a specific job, starting when work begins. The
job may be a product, service, or batch or products.
 The job-cost sheet can be in paper or electronic form. A simplified job-cost sheet follows:
ABC Co. Job Cost Record
Job No: 160 Customer: X Co.
Date Started: May 5, 09 Date Finished: May 9, 09
Description: Office Equipment.
Machining Assembly Total
DM Xx Xx Xxx
DL Xx Xx Xxx
FOH Xx Xx Xxx
Total Xxx Xxx xxx
 DM and DL costs are traced to the job, and FOH costs are allocated to the job.
 A typical job cost sheet provides information about on the date of products are started and completed, job
number, number of units completed and description.
 In short, job- cost sheet is a subsidiary ledger maintained to keep track of the manufacturing costs assigned to
each job and it is controlled by work in process control account.

General Approaches to Job Costing

 There are seven steps to assigning costs to an individual job. They are equally applicable to assigning costs to a
job in manufacturing, merchandising and service sectors.
Step1. Identify the cost object which is a job.
Step2. Identify the direct costs. DMs & DLs can be traced to each job using materials requisition and time
Tickets respectively and entered on the job-cost sheet.
Step3. Identify the indirect cost pools
 Overhead costs are accumulated in one or more cost pools. Accountants use judgment in choosing the
number and type of overhead cost pools for a given organization.
 Some organizations use a single cost pool for all fixed and variable overhead costs. Other
organizations use separate cost pools for fixed and variable overhead costs.
 All FOH are determined for each department using departmental overhead analysis sheet.
Step4. Select the cost allocation base
 The base must be easily measurable for each job.
 Direct labor costs and direct labor hours are the two most popular allocation bases because this
information is already captured by the payroll system.
 In a job order cost system, the units produced cannot serve as the allocation base because each unit, or
group of units, tends to be different (i.e., there is lack cause-and-effect relationship)
Step5. Develop allocation rate
 The overhead allocation rate expresses the relationship between overhead costs and some activity base
that can be traced directly to specific cost objects (job)
Actual costing Actual OH Actual indirect cost rate
ctual allocation base
Normal costing Budgeted OH Budgeted indirect cost rate
Budgeted allocation base (Predetermined OH rate)
Step 6. Compute indirect costs allocated to the job
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 Actual costing Actual indirect cost rate x Actual quantity of the cost allocation base used
Normal costing Budgeted indirect cost rate x Actual quantity of the cost allocation base used
Step 7. Compute total cost of the job
Actual costing = DM +DL+OH (actual)
Normal costing = DM+DL+OH (applied)
Actual Job Costing Systems in Manufacturing Firms
Example 1
Robinson Company uses a job costing system with two direct cost categories (DMs and Direct manufacturing OH)
and one manufacturing cost OH pool. The company allocates manufacturing OH costs using direct manufacturing
labor hours. The year 2003 budget and actual results are given below:
Budget for Year 3 Actual results for Year3
Mfg OH $1,120,000 $1,215,000
DL cost 500,000 550,000
DL hrs 28,000 27,000
Machine hrs 10,000 11,000
The job-cost sheet for job WPP 298 lists the following:
DMs used ------------- $4,606
DL cost ------------- 1,579
DL hrs ------------- 88
Required: Determine the cost of Job WPP 298 using actual costing.

Solution
The real part of the computation starts from step 5.
Step 5. FOH allocation rate?
Actual FOH rate = Actual FOH = $1,215,000 = $45 per DL hr
Actual allocation base 27,000

Step 6. Compute OH cost allocated to the Job

FOH allocated to Job WPP 298 = Actual rate per hour x Actual quantity (Hours)
= $45 x 88 DL hrs = $3,960
Step 7. Compute total cost of the job
Cost of Job WPP 298:
DMs -------------------------- $4,606
DL cost ---------------------- 1,579
FOH ------------------------- 3,960
Total cost of the Job $10,145
Normal Costing
Normal Job Costing Systems in Manufacturing Firms
 To know the actual cost of its job, the company should wait until the end of the year in actual costing system.
 Mgt cannot wait until the end of the year, or even until the end of the month, to find out how much a particular
job costs. Cost data are most useful when they are immediately (timely) available.
 The cost accountant is usually expected to report the total cost of a job as soon as it is finished.
 As a solution Predetermined (POR) or Budgeted OH rates are calculated for each cost pool at the beginning of a
fiscal year, and OH costs are allocated to jobs as work progresses.
Example 2
Robinson Company uses a job costing system with two direct cost categories (DMs and Direct manufacturing OH)
and one manufacturing cost OH pool. The company allocates manufacturing OH costs using direct manufacturing
labor hours. The year 2003 budget and actual results are given below

Budget for Year 3 Actual results for Year3

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 Mfg OH $1,120,000 $1,215,000
DL cost 500,000 550,000
DL hrs 28,000 27,000
Machine hrs 10,000 11,000
The job-cost sheet for job WPP 298 lists the following:
DMs used ------------- $4,606
DL cost ------------- 1,579
DL hrs ------------- 88
Required: Determine the cost of Job WPP 298 using normal costing.

Solution
The real part of the computation starts from step 5
Step 5. FOH allocation rate?

Budgeted FOH rate = Budgeted OH = $ 1,120,000 = $40/DL hr

Budgeted alloc. base 28,000 hrs
Step 6. FOH allocated (applied) to Job WPP 298?
FOH allocated = budgeted FOH rate x Actual quantity
$40 x 88 hrs = $3,520

Step 7. Cost of Job WPP 298?

DM 40,606
DL 1, 579
FOH 3,520
$9705
Explanation of Transactions (Cost Flows)
All the transactions relating to manufacturing and non-manufacturing activities in February, year 3 for several jobs is
given below: (amounts are assumed)
a) Purchases of materials (direct and indirect) on credit $89,000
Journal entry: Materials control --------------------89,000
Accounts payable control ----------------- 89,000
Both have the word control because they are general ledger accounts
b) Materials sent to the manufacturing plant floor: DMs $81,000 and Indirect Materials $4,000
Journal entry: WIP control ------------------ 81,000
Mfg OH control -------------- 4,000
Materials control -------------------85,000
c) Total mfg payroll for February: direct $39,000 ; indirect $15,000
Journal entry: WIP control ------------------ 39,000
Mfg OH control -------------- 15,000
Wages payable control -------------------- 54,000
d) Payment of total mfg payroll for February $54,000
Journal entry: Wages payable control --------- 54,000
Cash control --------------------------- 54,000
e) Additional mfg OH costs incurred during February, $75,000. These costs consist of engineering and
supervisory salaries, $44,000; plant utilities and repairs, $4,000; plant depreciation, $18,000; and
plant insurance, $2,000.

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 Journal entry: Mfg OH control ------------------- 75,000
Salaries payable control ------------------ 44,000
A/P control ---------------------------------- 11,000
Accumulated depreciation control----- 18,000
Plant insurance control --------------- 2,000

f) Allocation of manufacturing OH to Jobs, $80,000

We assume 2,000 actual DL hrs were used for all jobs in February year 3
$40 x 2,000 hrs = $80,000
From the 2,000 hours job WPP 290 used 88 hours only. So OH cost allocated to, it will be;
88 Hrs x $40 = $3,520
Journal entry: WIP control -------------- 80,000
Mfg Oh allocated ---------------80,000
g) Completion and transfer to finished goods of 12 individual jobs, $180,000. (Job no. 298 was one of
the jobs completed in February at a cost of $9,705)
Journal entry: Finished goods control ---------180,000
WIP control ----------------------------- 180,000
(Job order-cost sheet for completed jobs are removed from the WIP subsidiary ledger and become the
subsidiary ledger for the finished goods inventory control account.)

h) Cost of goods sold, $180,000. Job 298 was one of the jobs sold and delivered to customer in
February.
Journal entry: COGS ----------------180,000
Finished goods ----------180,000
i) Marketing and customer service payroll and adverting costs accrued for February:
Mktg dept. Salaries ---------$35,000
Advertising costs ------------ 10,000
Customer-service costs --- 15,000
$60,000
Journal entries:
Mktg & advertising costs ------ 45,000
Customer service costs -------- 15,000
Salaries payable ---------------- 50,000
A/P control ---------------------- 10,000
Multiple Overhead Cost pools
 A plant-wide overhead rate is a single overhead rate used throughout all departments of a company. If all
production departments in a manufacturing business have the same mix of labor and machine, and all jobs require
the same amount of work in a given department, then it is appropriate to use a single, plant-wide overhead rate.
 But some departments are machine intensive and some are labor inventive, then the amount of overhead applied
will not approximate the overhead used in all departments.
 If we use DL hours as the activity base in a labor intensive department, this will give a good result but if we use
DL hours in a machine intensive environment that has few labor hours actually worked, the result will be very
unsatisfactory.
 Machine-intensive departments typically use a lot of overhead cost but if there are few labor hours and the rate is
applied on the basis of DL hours, little overhead will be applied.
 Even if all departments are labor intensive, the amount of labor time required for each job might vary from one
department to another.
 This could result in inaccurate application of OH costs to a given job if a single labor based plant-wide rate was
used for all departments.

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 By using separate departmental overhead rates, the OH applied can be tailored to the specific needs of a particular
job. This will lead to more precise costing of products, which can be critical if the business has to bid for jobs.
 The benefit of having this system to have more accurate information should exceed the costing system adopted.
Example
ABC Company uses Job costing system. The plant has a machining department and a assembly department. It has
two direct cost categories (DMs and Direct Mfg labor ) and two Mfg OH cost pools (the machining department OH,
allocated to jobs based on actual machine hours, and the assembly department OH, allocated to jobs based on actual
direct mfg labor cost.
Budgeted amount for the year:
Machine Assembly
Mfg OH ------------------------- $48,000 $360,000
Direct mfg labor cost --------- 350,000 720,000
Direct mfg labor hrs ---------- 50,000 80,000
Machine hrs -------------------- 100,000 35,000
During October, the job sheet for job No. 160 listed the following:
Machine Assembly
DMs used ---------------------- $12,000 $20,000
DL cost used ------------------ 1,400 4,860
DL hrs --------------------------- 200 540
Machine hrs ------------------- 2,000 700
The actual results for the year were as follows:
Machine Assembly
Mfg OH ------------------------ $390,000 $330,000
DL cost ------------------------ 300,000 750,000
DL hrs ------------------------- 37,500 78,125
Machine hrs ----------------- 78,000 30,000
Required: Compute the cost of Job No. 160 using actual costing and normal costing

Solution: Actual Costing

The real part of the computation starts from step 5
Step 5. Actual FOH allocation rate?
Machining Assembly
Actual FOH rate = Actual OH = $390,000 $330,000
Actual allocation base 78,000 hrs $750,000
= 55/DL hr 44%
Step 6 & 7. FOH cost allocated to the Job and total cost of the Job

Product Job No. 160: Machining Assembly

DM $12,000 $20,000
DL 14,000 4,860
FOH (actual) (5x2,000 hrs) (44%x4,860) 10,000 2138.40
Total $23,400 $26,998.40

Total cost of the Job is $23,400 + $26,998.40 = $50.398.40

Solution: Normal costing
Step 5. Budgeted FOH allocation rate?
Machining Assembly
Budgeted FOH rate = Budgeted Oh = $480,000 $360,000
Budgeted alloc. Base 100,000hrs $720,000
= $4.80/hr 50%

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 Step 6 & 7. FOH cost allocated to the Job & and total cost of the Job

Product job No. 160 Machining Assembly Total

DM $12,000 $20,000 $32,000
DL 1,400 4,860 6,260
FOH (actual) ($4.8x2000 hrs)(50%x4860) 9,600 2,430 12,030
Total $23,000 $27,290 $50,290

Process Costing
According to ICMA, London,” process costing is that from of operation costing, where standardized goods are
produced”
 Process costing is a method of costing used to find out the cost of a product at each process of production.
 Process costing is used for production processes that produce mass quantities of identical units that use the same
amounts and types of direct labor, direct materials, and overhead.
 All costs are accumulated by departments, operations, or processes. The accumulated costs can be averaged
over the entire production since each unit is essentially identical.
 Businesses using Process Costing: chemical plants, food processors, household appliance manufactures, textile
companies, petroleum products manufactures, paper, lumber and pulp mills, class factories, soft-drink
industries, beverage companies, cement factories, food processing, ceramics, oil, etc.
CHARACTERISTIC/ FEATURES OF PROCESS COSTING
1. The factory is divided into a number of processes.
2. In process costing a separate account is maintained for each process
3. All types of cost – direct and indirect – relating to process are recorded for each process.
4. The finished product of one process is the raw material for the next process and this procedure continues until
the final product arrives.
5. The product and processes and standardized.
6. The cost of the previous process is transferred to the subsequent process alone with output.
7. Total cost of finished final product comprises of all cost incurred in all processes.
8. Finished products at the end are homogenous.
9. The cost of normal wastage is added to goods units produced.
Advantages of Process Costing:
1) Cost of each process and that of the finished product can be computed at short intervals, weekly or daily.
2) Cost control and control over production are more effective because of uniform output.
3) Cost ascertainment is simple and less expensive.
4) Average cost per unit can easily be obtained.
5) Indirect expenses can be apportioned and allocated more accurately and reliable data can be obtained.
6) Valuation of inventories is easier and accurate.
Disadvantages:
1) Costs obtained at the end of processes are historical costs and their utility for cost control and managerial
decision-making is not significant.
2) Later processes may be adversely affected due to the inefficiency of earlier processes.
3) Evaluating the efficiency of individual workers or supervisors is difficult.
DISTINGUISH BETWEEN JOB COSTING & PROCESS COSTING.
PROCESS COSTING JOB COSTING
1. Process costing is applied in the case of mass production of 1. Job costing is applicable in situations where the objective is
similar units that continuously pass through different processes. to identify costs with specific products or jobs.
2. Products are manufactured for building up stock. 2. Products are manufactured as per customers order.
3. The costs are accumulated by a job or work order regardless 3. The costs are accumulated by the process for a particular
of the time taken to complete it. period regardless of the number of units produced.
4. Normally there will be an opening & closing work-in Here, work-in progress may or may not exist at the end of the
progress for the accounting period. accounting period.
5. Cost per unit is obtained by dividing process cost by process 5. Cost per unit is obtained by dividing the cost per unit of the
production. job order by units produced in the job order.

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There are three cases in process costing that will be considered in section.
Case 1: Process costing with zero beginning and zero ending work-in-process inventories that is all units are
started and fully completed by the end of the accounting period.
Illustrating Process Costing
Haron Chemical Company makes different chemicals and uses process costing system to account for its operation.
One of its products, namely product A is produced in two processing departments: the Mixing Department and the
Bottling Department. Product A is marketed in one-liter bottles.
Part I: Mixing Department
In the mixing department, various ingredients are added at the start of the process and costs are accumulated in two
pools, one for direct material and another for the conversion costs. Direct material is added at the beginning of the
process and conversion costs are applied evenly throughout the process. Data for the first month of operation
September of the mixing department is given below:
Physical Units, Costs and Stages of Completion
Beginning work in process 0 units
Started during the month 1,000 units
Completed during he month 1,000 units
Direct material costs Br. 80,000
Conversion costs Br. 40,000
Ending work in process 0 units
Required: Compute the total cost and unit cost of the process.
Total cost of production for the month is computed as follows:
Direct Material costs -------------------- 80,000
Conversion costs -------------------------- 40,000
Total cost ----------------------------------- 120,000
Unit cost
Direct material --------------------------- 80 (80,000/1000)
Conversion cost ------------------------- 400 (40,000/1000)
Total --------------------------------------- 120 (120,000/1000)

Case 2: Process Costing with zero beginning but some ending work in process inventory
Data for the second month of operation (October) of the Mixing Department is given below:
Physical Units, Costs and Stages of Completion
Beginning work in process 0 units
Started during the month (Input) 2,000 units
Completed during the month 800 units
Ending work in process (60% completed as to conversion cost) 1.200 units
Direct material costs Br. 160,000
Conversion costs Br. 91,200
Required: Calculate the cost of fully assembled (completed) units and the cost of partially (WIP) assembled units
still in process at the end of September?
Steps:
 Summarize the flow of physical units of output.
 Compute output in terms of equivalent units.
 Compute equivalent unit costs.
 Summarize total costs to account for.
 Assign total costs to unit’s completed and to units in ending work in process.
Step 1: summarize the flow of physical units of output (quantity schedule)
This schedule shows the physical flow of units into and out of departments. The total units to account for most equal
to the total units accounted for.

Step 2: Equivalent Units (EUs) Schedule:

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Equivalent units are the number of units for which periodic manufacturing cost is incurred. Equivalent units equal the
total units completed plus incomplete unit restated in terms of completed units.
Step 3: Equivalent unit costs
This is computed by dividing costs incurred by the related equivalent units.
Step 4: Cost to Account for Schedule:
This schedule shows which costs are charged to or accumulated by the department. Unit costs broken down by the
cost elements are also presented in this section.
Step 5: Assign total costs to unit are completed and to units in ending work in process
This schedule shows the distribution of accumulated costs to units completed & transferred and to units still in
process. The total cost to account for must be equal to the total cost accounted for.
Physical units & Equivalent units (Step 1 & 2)

Step – 1 Step – 2 equivalent units

Flow of production Physical units Direct Material Conversion costs
Beginning work in process 0 - -
Started during the month 2,000 units - -
Total units to account for 2,000 units - -
Completed during the month 800 800 800
Work in process ending 1,200 1,200 720
Total units accounted for 2,000 - -
Work done current period 2,000 1,520
Statement of Cost assignment (step 3 to 5)
Production cost report Total production cost Direct material cost Conversion cost
Costs added this period 251,200 Br. 160,000 Br. 91,200
Equivalent units 2,000 1,520
Equivalent unit cost (step -3) 80 60
Total cost to account for (step -4) 251,200 - -
Assignment of cost (step 5) - - -
Competed & transferred out 112,000 800*80 800*60
W/P ending: Direct material 96000 -- 1,200*80 -
Conversion cost 43,200 -- - 720*60
Total W/P ending 139,200 - -
Total cost accounted for 251,200 - -
Journal entries
 W/P mixing department -------160,000
A/P ---------------------------------------- 160,000
 W/P mixing department ------- 91,200
Various accounts -----------------------91,200
Case 3: Process costing with some beginning and some ending work in process inventory.
Data for the third month of operation (November) of the mixing department is given below:
Beginning work in process – 1,200 units
Direct materials cost 96,000
Conversion cost 43,200 (60% completed) 139,200
Started during the month 1,000 units
Completed during the month 1,600 units
Ending work in process (50% competed as to conversion costs) 600 units
Direct material costs Br.69,000
Conversion costs Br.70,800
Required: use five step method, compute the cost of completed units and ending WIP under:
1. Weighted-Average process costing method
2. First-in, First-out Method

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Weighted-Average process costing method
 This method calculates the equivalent unit cost of the work done to date (regardless of the period in which it was
done) and assigns this cost to equivalent units completed and transferred out of the process and to equivalent units
in ending work in process inventory.
 The weighted average cost is the total of all costs entering in the work in process account (regardless of whether it
is from the beginning work in process or from work started during the period) divided by total equivalent units of
work done to date.
Weighted average method
Step – 1 Step – 2 Equivalent units
Flow of production Physical units Direct material Conversion costs
Beginning work in process 1,200 - -
Started during the month 1,000 - -
Total units to account for 2,200 - -
Completed during the month 1,600 1,600 1,600
Work in process ending 600 600 300
Total units accounted for 2,200 - -
Work done to date - 2,200 1,900

Production cost report Total production cost D. Material cost Conversion cost
Beginning W/P Br. 139,200 Br. 96,000 Br. 43,200
Current period cost 139,800 69,000 70,800
Cost incurred to date - 165,000 114,000
Equivalent units - 2,200 1,900
Equivalent unit cost ( step – 3) - 75 60
Total cost to account for (st-4) 279,000 - -
Assignment of cost - - -
Competed & transferred out 216,000 1600*75 1600*60
W/P Ending: Direct material 45,000 600*75
63,000
Conversion cost 18,000 300*60
Total cost account for 279,000
Journal entries
 W/p mixing department -------- 69,000
A/P --------------------------------------- 69,000
 W/P mixing department -------- 70,800
Various accounts --------------------- 70,800

First-in, First-out Method

 The FIFO process costing method assigns the cost of the previous periods equivalent units in beginning work-in
process inventory to the first units completed and transferred out of the process, and assigns the cost of equivalent
units worked on during the current period first to complete beginning inventory, then to start and complete new
units in ending work in process inventory.
 This method assumes that the earliest equivalent units in the work in process account are completed first.
 A distinct feature of the FIFO process-costing method is that work done on beginning inventory before the current
period is kept separate from work done in the current period.
 Costs incurred in the current period ad units produced in the current period are used to calculate costs per
equivalent unit of work done in the current period.
 In contrast equivalent unit and cost per equivalent unit calculations in the weighted average method mere the units
and costs in beginning inventory with units and costs of work done in the current period.

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FIFO Method
Step – 1 Step – 2 Equivalent units
Flow of production Physical units Direct material Conversion costs
Beginning work in process 1,200 - -
Started during the month 1,000 - -
Total units to account for 2,200 - -
Completed during the month
From beginning WIP 1,200 - 480
Started and completed 400 400 400
Work in process ending 600 600 300
Total units accounted for 2,200 - -
Work done only current period 1,000 1,180

Production cost report T/ Prod. cost D/M cost C. cost

Beginning W/P Br. 139,200 --- ---
Current period cost 139,800 69,000 70,800
Work done only current period 1,000 1,180
Equivalent unit cost (step – 3) - 69 60
Total cost to account for (st-4) 279,000 - -
Assignment of cost (step -5)
Completed:
From the beginning WIP
Cost in the beginning WIP 139,200 -
Cost to complete these units - - -
Direct materials 0 - 0*69
Conversion costs 28,800 - - 480*60
Total cost from beginning 168,000 - -
Started and completed during the period 51,600 400*69 400*60
Total completed & transferred out cost 219,600 - -
W/P Ending: Direct material 41,400 -- 600*69
Conversion cost 18,000 300*60
-
Total W/P ending 59,400
Total cost account for 279,000 - -

Journal entries
 W/P mixing department --------------69,000
A/P --------------------------------------------- 69,000

 W/P mixing department -------------- 70,800

Various accounts --------------------------- 70,800

 W/P bottling department ------------ 219,600

W/P mixing department ---------------- 219,600

Operating Costing is a hybrid-costing system. It is used in situations where products have some common as well as
individual characteristics. TVs, for example, have some common characteristics in that all models must be
assembled and tested following the same basic steps. However, each model has different components with
different costs. The costs of the components (materials) would be charged to a batch of a particular model
individually, as in job-order costing, but the conversion costs may be assigned using process costing.

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