A form of specific order costing which applies where a quantity of identical items are manufactured as a unique batch. In a similar way to job costing, batch costing is used in situations where a specific customer order determines the work to be done. However, job costing is for situations where a single cost unit is being made (e.g. a single item of bespoke furniture), whereas batch costing is used where a unique batch consists of identical items (e.g. a printing company producing a bespoke batch of 1000 identical A4 adverts).
Two typical situations in which batch costing would be used are:
- where a customer orders a quantity of identical items; or
- where an internal manufacturing order is raised for a batch of identical parts.
In general the procedures for costing batches are very similar to costing jobs. The batch would be treated as a job during manufacture. On completion of the batch the cost per unit can be calculated by dividing the total batch cost by the number of good units produced.
Examples of products that are best accounted for cost through batch costing include:
- Production of engineering components
- Radios/television sets
- Clothing manufacturer
The costs included in the batch cost are direct costs of material, labour and direct expenses plus overheads absorbed into the batch.