Hybrid Costing

by Dan

A hybrid costing system is a combination version of accounting using both the process costing and job costing methods.  Process costing works best for mass-produced, identical items, measuring the cost of each step in the manufacturing process.  Job costing is better suited for custom or unique products that are produced at low volume, measuring the materials in batches.  Since many companies do not fit into either of these clear-cut categories, they choose to use a combination, or hybrid, of the two costing systems.

There are many reasons that a hybrid costing method is popular.  For starters, a hybrid costing method can in some circumstances be more accurate and detailed, finding costs both of materials and labor as well as the individual methods and steps used.  There are many thousands of products and companies that will need both simply to fit the needs of their product.  Companies that have products that are mass produced as well as custom products would benefit from a hybrid costing system, as well as companies that sell products that are partially mass-produced and partially custom.  For example, a company that produces cars will have many of the main components of the vehicle mass-produced.  The frame components, engine, gas tanks, doors, hood and roof, interior dash, seat cushions and floors might all be mass produced and identical. However, after these are produces and assembled, there will be many options for paint colors, interior trim, wheels and tires, even window tint and safety features.  These items will be created either custom, or on an individual basis.  Hybrid costing could also be beneficial where various product lines may need different materials but use a similar manufacturing system for all.  The car manufacturer example may work in this case, as well as – let’s say – a sofa company who mass manufactures a certain model in various textiles, fabrics, leathers, designs.  All use a similar manufacturing technique, but would use varying costs of materials.  This hybrid system of costing is necessary when a company like these need job order costing to trace direct material of specific/custom work to be combined with the process costing to average the overhead and labor to all the homogenous production in order to understand the total cost of the product.

One issue to consider is the increased time and cost of a hybrid system.  Companies should weigh the benefits versus the cost before implementing basically two different costing systems.  A hybrid system should only be used when the results of accounting differ greatly compared to when using only one type of costing system.

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