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43 Batch Costing Notes

The document discusses batch costing, which involves producing batches of identical units rather than individual orders. It explains how batch costs are calculated by adding direct materials, labor, expenses, and overhead costs. The cost per unit is determined by dividing the total batch cost by the number of units. The sale price is calculated by adding a profit margin to the total batch cost.

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38 views

43 Batch Costing Notes

The document discusses batch costing, which involves producing batches of identical units rather than individual orders. It explains how batch costs are calculated by adding direct materials, labor, expenses, and overhead costs. The cost per unit is determined by dividing the total batch cost by the number of units. The sale price is calculated by adding a profit margin to the total batch cost.

Uploaded by

getcultured69
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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MA - More cost accounting techniques

Batch Costing

Batch costing involves the production of batches of identical units rather than an individual order or contract
produced to a customer’s specific requirements.

Note: The use of batch costing is appropriate when we consider the production of batches of items such as
bottles of water, bars of chocolate, toothbrushes, postcards, etc.

In batch costing, it is common to add together the costs involved in producing a batch of items in order to
establish a cost per batch:

Direct materials X

Direct labour X

Direct expenses X

Batch setup cost X

Variable overheads X

Prime cost X

Fixed overheads X

Total batch cost X

Cost per unit X

All direct costs are variable costs because they vary with the level of activity (or the batch size). The batch set-up
cost is a direct cost and also a fixed cost, as it does not vary with the level of activity or batch size.

Total batch costs = Prime cost + Fixed overheads

Total batch cost


Cost per unit =
Number of units

In order to determine the price for each batch, organizations use following calculations:
Sale price = Total batch cost + Profit

Total batch cost


Profit Sale price =
Profit margin = (1 - Profit margin)
Selling price

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