Batch Costing

This is another form of job costing which is adopted in case of manufacturing of a large number of components of machines or of other articles. Since a large number of them are manufactured together and pass through the same process of manufacture, it is convenient to collect their cost of manufacture together. Separate job cost sheets are maintained for each batch of products. Each batch is allotted a number. Material requisitions are prepared batch wise, the direct labour is engaged batch wise and the overheads are also recovered batch wise. Cost of each component in the batch is then determined by dividing the total cost by the number of articles manufactured.

Feature of Batch Costing

Features of batch costing system are as under:

Batch costing is applied in industries where identical products are produced.
A batch is a cost unit which consists of a separate, readily identifiable group of product units which maintains its separate identity throughout the production process.
The output of batch consists of a number of units and it is not economical to ascertain cost of every unit of output independently
The procedure is very similar to job costing:
Each batch is treated a job and costs are calculated for total batch.
On completion of production cost per unit is found as

Cost per unit = (Total Batch Costing) / Total Units in Batch

Difference between Job Costing and Batch Costing

Job Costing	Batch Costing
It is carried out or a product is produced by specific orders.	The process of producing the product has a continuous flow and product is homogeneous.
It is determined for each job.	It is compiled on time basis.
Each job is separate and independent of other jobs.	Product lose their individuality as they are manufactured in a continuous flow

Applications of Batch Costing

Batch costing is used for calculating total cost of each batch. Batch is small group of units which is produced for production purposes. We also identify batch of units in our production. All raw materials are supplied on batch basis and other expenses are also paid on the basis of each batch.

For instance, in the drugs industry, producer will make the batch of tablets instead of producing single tablet. This will be easy to sell that batch in market. So, calculating cost of each batch, we will calculate material cost per batch, labour cost per batch and other expenses per batch. If we want to calculate cost per unit, we have to divide total batch cost with total batch units.

It is used in following industries:

Manufacturing industry for readymade garment
Manufacturing industry for toys
Manufacturing industry for tyre & tube

Illustration 1

ABC Limited manufactures ring binders which are embossed with the customers’ own logo. A customer has ordered a batch of 600 binders. The following illustrate the cost for a typical batch of 100 binders.

Direct materials 60

Direct labour 20

Machine set up 6

Design and art work 30

Prime cost 116

Direct employees are paid on a piecework basis.

ABC Limited absorbs production overheads at a rate of 20% of direct wages cost. 5 % is added to the total production cost of each batch to allow for selling, distribution and administration overheads.

ABC Limited requires a profit margin of 25% of sales value.

The selling price for 600 binders (to the nearest penny) will be: