Batch Costing

Topics: Cost accounting, Cost, Management accounting Pages: 16 (4338 words) Published: November 17, 2008


Historically, because of the industrial background of cost accounting, specific order costing has tended to centre around the manufacturing environment. Given the developments both in cost accounting and performance evaluation over the last 20 years or so, cost accounting is now being applied in manufacturing, non manufacturing , service and even in non profit making organizations.

Cost Accounting is usually considered only as it applies to manufacturing operations. In today’s economy, however every type and size of organization should benefit form the use of cost accounting concepts and techniques. For example financial institutions, governmental agencies and NGO’s may apply cost accounting principles. In specific order costing products are made according to the orders of the clients. Every product has different style than the other. There is another method, which is process costing in which products are made simultaneously without differentiation. What we are dealing with when we are considering a batch is a group of items that are closely related, and are being made for a single customer, or are being made all at the same time; and the key point for our purposes is that the group of items maintains its identity as a batch, serial numbers, product numbers, production numbers, all identify the goods as a batch. The accumulation and recording of costs under batch costing is very similar to the techniques used with job costing. Before we get into the detail of Batch Costing, let me advise anyone who reads this page who has never been inside a factory or who has never been inside an office ... and who has never thought about the cost accounting aspects of any of that, to consider undertaking either Project 1 and/or Project 2 below. The biggest problem that many people experience when studying cost accounting is that it is meaningless for them: this is because they can't relate to it ... factories and offices and so on are the places to go to help you start unraveling the wonders of cost accounting.

Project 1:
Visit a factory, engineering workshop, car repair shop, word processing bureau, anywhere where a one off type job or service is being made or provided. Follow through as much of a job or service as possible: note the flow of materials, labour and overheads. Once you have observed the process you should map out (flow charts are ideal for this) both the stages of the process you have observed and the cost accumulation aspects of each stage. Project 2:

If you are unable to set up a visit as per project 1, watch television programmes, video recordings or films that depict jobbing situations in industry and commerce; then repeat as much of project 1 as possible


A type of job costing where a batch of identical products is treated as an individual job with unit cost found by dividing the total batch cost by ……… Or
A costing system used by organizations whose products are easily identified by batches Or
Batch costing is not normally seen as much of an advance on job costing. Or
A group of similar articles which maintains its identity throughout one or more stages of production and is treated as a cost unit Or
A form of specific order costing; the attribution of costs to batches Or
The basic cost accounting method applicable where work consists of separate contracts, jobs or batches


Accountants had defined cost as “an exchange price, a forgoing or sacrifice made to secure benefit. In financial accounting, the forgoing or sacrifice made at date of acquisition is represented by a current or future diminution in cash or other assets” Frequently the term cost is used synonymously with the term expense, however an expense may be defined as a measured flow of goods or services, which is matched with revenue to determine income.

Cost is used specifically, it should be modified by such descriptions as direct,...
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