Southern Comfort is a small manufacturer of bedroom furnishing. Presently, the c

Question

Southern Comfort is a small manufacturer of bedroom furnishing. Presently, the company uses a job order costing system and full absorption accounting method for cost accumulation. Factory overhead is applied based on direct labor hours. The manufacturer produces canopy, platform, sleigh, day beds, and triple dressers. Southern Comfort has hired Mr. Jones, a management accounting consultant. His job is to advise the manufacturer’s owners on the accounting changes that would occur if the processes to manufacture the furniture were to be reengineered to a hybrid product costing system. What factors should he review in his analysis? What accounting changes would occur? Do you think that manufacturers are always successful in making such a conversion? Why or why not?

Explanation / Answer

Hybrid costing system is always advocated to those manufacturing facilities where they manufactures a similar/identical kind of batches of products and later those batches are worked upon and the finished products will be different to each other may be in color, in size. SO here in this case we can advise Southern Comfort to go for hybrid costing system since their finished products are different from each other even if they fall in same category of product, they might differ in color and design. Here the company has to track the cost at two fronts, one is for process cost/ batch costing and another is job costing. So company has to use two method of costing that will bring the changes in accounting. Here as discussed company must review that the reason to shift to hybrid costing and the reason is better allocation of cost, since the company manufactures canopy, platform, sleigh, day beds, and triple dressers, these all products go through the same process in starting and then their looks, design and shape changes, hence bifurcation of these two costs and allocating them to the product will help the company in better determining of cost of its product. Manufacture may not always successful in making this changes, because this is a bit time consuming and a bit costly method of costing so when there is big amount of products producing this is advisable to go with hybrid costing, but some time, a company just don’t need this if they do not produce at big scale then it will be a costing burden hence they are more tend to fail. This accounting system also requires skilled managers who will be able to design the process well, and allocate the cost accordingy, some time just due to lacking of good managerial skill, this all costing system gets messed up hence company don’t get enough advantage of it. The best is to first judge if the quanity you produce is needed to go for this method or not is yes then go for it. If your prodcution scale is big enough and you have good skilled manager this system will be benefitting you in better allocation of cost and managing and controlling cost.

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