A hybrid costing system is a system used by businesses that combines job order activities as well as process costing activities. Hybrid costing often refers to operation costing which is used in the production of goods.
This type of costing is used when similar products are manufactured that have common characteristics for many parts of production, but yet are different in others.
A shoe manufacturer might process all shoes the same up to a certain point. After this point, however, the production of the shoes change to offer different types and styles.
Hybrid costing is used to separate costs and allocate costs to individual products or groups of products. Through hybrid costing, overhead costs and labor costs must be allocated to goods produced. Because much of the production is the same for all products manufactured, accountants use hybrid costing to distinguish these costs and determine individual product costs.