Question

Choose a manufacturing company and explain if its inventory should use a hybrid-costing system (combination of process costing and job order costing). Explain what type of manufacturing company would choose to use a hybrid-costing system.

Answer 1

Hybrid costing system is the combination of both process costing and job costing. In process costing the cost for producing identical units through various processes is determined, where as in job costing cost for a single and each and every unique customised product us determined.

And in general every product will go through same processes upto some level of production and after coming from that level each product will be designed according to the Models designed or as per the requirements of the customers. Here there is the combination of process and job costing which is called as Hybrid costing system.

Textile industry is one of the industry in which hybrid costing system should be used for its inventory. Because in textile industry while producing shirts, the process of cutting the clothes, stitching the clothes will follow the process. As upto that stage every product is identical. After that every shirt will go for further designing process where each shitr will be designed uniquely as per the designed models or requirements of the customers or may be as per the current trend and demanded fashions.

Hybrid system of costing is used in this type of manufacturing industry where both, process at different levels and unique designing at last level is involved in the manufacturing process of that product manufacturing industry.

For example :- Motor bikes, Refrigerators, Furniture, textile etc...