Final answer:
Large companies often use hybrid costing systems that are a mix of job-costing and process costing. These systems help them manage costs in environments where they produce both specialized and mass-produced items. Examples of how changing costs of labor and machinery affect production technology choice demonstrate the flexibility needed in their costing systems.
Step-by-step explanation:
Many large companies with multiple production methods and processes use hybrid costing systems that are a mix of job-costing and process costing. This type of system allows a business to accurately track costs in environments where both individualized products (job-costing) and mass production (process costing) occur. Examples of how these costs might shift with changes in labor and machinery costs are illustrated with three examples (A, B, C).
In Example A, with lower wages at $40 and machine costs at $80, technology 1, which uses the most labor and least machinery, is the low-cost production technology. As wages increase to $55 in Example B, the costs shift, making technology 2, with a different labor-to-machinery ratio, the low-cost option. Finally, if wages continue to rise to $90 as in Example C, technology 3, which uses the least labor and the most machinery, becomes the low-cost production technology.
This illustrates a company's adaptation and shift between labor and machinery in its production technologies as labor costs change. As such, these companies will need hybrid costing systems to handle these changes effectively and make cost-efficient decisions. These systems help identify the most cost-effective production technology based on current labor and machine costs.