Batch Costing Meaning, Features, Advantages, Disadvantages, Application

Batch costing is that form of specific order costing under which each batch is treated as a cost unit and costs are accumulated and ascertained separately for each batch. Each batch consists of a number of like units.

Batch costing is a method of costing used by the concerns which produce an identical product or a component in a very large number at a time. All units produced at one time are collectively known as a batch and the cost of production is calculated for a batch because a batch is regarded as a unit. When the batch production becomes complete, production of the next batch is started.

Features

Unit cost of a product varies with the size of the batch. If quantity produced in a batch is small, the unit cost of the product is more and if the quantity produced in a batch is large, the unit cost of the product of that batch is less. Therefore, it is necessary to find out the economic batch quantity by producing which the cost of production of a unit of the product can be kept to the minimum.

Each batch is given a separate number and the output of a batch is identified by the number of the batch recorded on each unit of output of the batch. Therefore a unit of the product is output of which batch can be easily found out by referring to the batch number recorded on the unit, e.g. the number of the batch in which bottle of medicine has been produced is recorded on the bottle of medicine.

Batch is a unit for cost calculation. In a batch the units of identical product may be in hundreds or in thousands but each batch is regarded as an independent unit and its total cost is equally divided by the number of units produced in that batch in order to decide the cost of production of a single unit of the product.

Batch costing is a variation of job costing. In job costing work of production is carried out according to the specifications and instructions given by a customer whereas in batch costing a large number of units of an identical product are produced as ordered by a customer or for storage and sale in the market.

Advantages

• There are the advantages of consistent cost of production of every article produced in a batch under batch costing.
• Under this method, supervision becomes easy and more effective by means of spreading over the supervisor’s time over all the units constituting the batch. Thus, the idle time of supervisor’s as well as workers are eliminated.
• Accounting work is reduced under batch costing because costing is done in respect of a batch of product of homogeneous jobs.
• The loss of time under job costing arising out of inter-job transfer of materials, labours and tools are minimised under batch costing.
• It makes benefit of reduced cost of production arising out of economic batch quantity or lot size.

Disadvantages

• If the production of a batch is wrongly undertaken, the whole batch of the articles are to be discarded which will become a great loss to the manufacturer.
• When quantity of goods to be manufactured differs from customer to customer, again it becomes difficult to determine the batch.
• Determination of a batch from various jobs often pose problem. It is difficult to come across absolute homogeneity of jobs.

Application of Batch Costing

The Batch Costing Method is followed in the industries where production is carried on in large size homogeneous products. Such type of products are produced and stored. Products are produced from the same type of raw materials and in the same process. But the volume of production is determined well in advance ie Economic Batch Quantity.

It is applicable to industries like nuts and bolts, medicine, shoes, books, drugs, computers, read made garments, laptop, radio, biscuits, spare parts of two-wheeler, components and in all concerns where production is made in batches.