What is Batch Costing? – Definition
Batch costing is nothing but a modified form of job costing in which cost is calculated of each batch of production. This method of costing is applicable in those manufacturing unit, where articles are manufactured in definite batches. This method is also known as ‘Lot Costing’ as products are produced in a lot, say, of 500, 1000 or so on.
This method is usefully employed in pharmaceutical or drug industries, ready-made garments factory, watches, radios, televisions, etc.
Batch Costing is a varied form of Job Costing. While Job Costing is concerned with the ascertainment of the cost of executing jobs by a jobber according to the specifications given by the customers. This Costing System is concerned with the ascertainment of the cost of a group of identical products manufactured for own stock.
Batch Costing is generally applied in the manufacture of medicines, component parts of complex products (such as motor cars, scooters, computers, watches, televisions etc.), biscuits, food products, readymade garments etc. The products manufactured in a batch are to be used for a particular purpose (e.g., spare parts of complex or composite products are to be used in a particular model only) or to be consumed within a specified period (e.g., medicines, biscuits and food products are to be consumed within a given period otherwise they become harmful).
Batch Costing Procedure
The costing procedure here is also similar to that of a job costing with the only difference that a batch becomes the cost unit in place of a job.
For the purpose of costing, each batch or group of identical products is allotted a serial number (known as 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 ‘Batch Cost Sheet.’
The Batch Cost Sheet includes the Cost of Direct Material, Cost of Direct Labour and Direct Expenses which can be directly identified with a particular batch. The share of overhead chargeable to the batch (calculated on some equitable basis) is also included in the statement. The total cost of a batch as shown by the Batch Cost Sheet divided by the total number of products in the batch will give us the cost per product in the batch.
You are required to prepare a Batch Cost Sheet of an engineering works showing the cost of Batch No. 8801 of 1,000 units from the following information. You are given that the batch passes through three departments, X, Y and Z. Costs incurred for the batch are:
After the batch is complete, 600 kgs. of raw materials issued to Dept. X are found to be surplus and returned to stories.