Financial Accounting Concepts

What is Batch Costing? How is it Different From Job Costing?

Batch costing is a form of specific order costing in which costs are attributed to batches of products. A batch might also be called a ‘production run’.

A batch is a group of related but distinctively different products that are produced at the same time. Each batch costs exactly the same as a job and is very comparable to a job. A batch cost card contains all of the costs associated with that batch. Materials, labour, expenses, and a batch’s share of overheads make up these costs.

The nature of batch costing

Batch costing is nothing but a modified form of job costing in which the cost of each batch of production is calculated. This method of costing is suitable for manufacturing units in which items are manufactured in definite batches.

The total cost is determined for each individual batch in batch costing, where each batch consists of a significant number of identical units or items. Contrary to job costing, non-production overhead costs are less frequently included in total batch costs, though it is still possible to do so. The total batch cost is divided by the quantity of units produced in the batch to determine the cost per unit.

Batch Costing Procedure

The costing procedure for batch costing is similar to that of job costing. The only difference is that a batch becomes the cost unit rather than a job.

For the purpose of costing, each batch (or group of identical products) is allotted a serial number (known as a batch number), just like a job number. The presentation of the various items of cost is made in the form of a statement known as a batch cost sheet.

The cost of any direct materials, direct labour, and direct expenses that can be directly associated with a specific batch are all listed on the batch cost sheet. Included is the portion of overhead that is attributable to the batch (calculated on an equitable basis). The cost per product in a batch is calculated by dividing the total cost of a batch, as shown on the batch cost sheet, by the total number of products in the batch.

Cost per product in the batch = Total cost of a batch / Total number of products in the batch

Also Read: How to Calculate Profit or Loss on Incomplete Contracts?

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