Batch Costing

Presented By : Vinay Nadar (064) Sachin Bajaj (066) Mohit Sadhotra (080) Neha Singh (094) Siddharth Ray (098) Supriya Uchil (104) Ramakrishnan (107) Rahul Tamrakar (124)

What is Batch Costing

It is a variant of job costing.

Under batch costing, a lot of similar units which

comprises the batch may be used as a unit for ascertaining cost. In the case of batch costing separate cost sheets are maintained for each batch of products by assigning a batch number. Cost per unit in a batch is ascertained by dividing the total cost of a batch by the number of units produced in that batch.

Difference between job costing and batch costing

Accounting to job costing, costs are collected and

accumulated according to job. Each job or unit of production is treated as a separate entity for the purpose of costing. Job costing may be employed when jobs are executed for different customers according to their specification. Batch costing is a form of job costing, a lot of similar units which comprises the batch may be used as a cost unit for ascertaining cost.

Uses of Batch Costing

Where a business produces a product to meet a

customer specification but where a number of similar items are made for each order Where a business produces a single item to meet a customers specification but where the product being made contains components that are also used in other products Such a method of costing is used in case of pharmaceutical industry, readymade garments, industries manufacturing parts of TV, radio sets etc.

Batch Cost Sheet

Cost of each batch is recorded on batch cost cards

or batch cost sheets Batch cost sheet records all costs for a single batch A separate cost card or sheet will be opened for each new batch
Record:
1)For finished jobs the total direct cost 2)For unfinished batch jobs the total cost recorded till date to give work-in-progress figure 3)Cost of materials purchased specifically for the batch 4)Cost of materials drawn from stores per batch 5)Cost of direct wages 6)Direct expenses

Determination of Batch Costing

The determination of economic batch quantity involves two

type of costs viz, (i) set up cost and (ii) carrying cost. With the increase in the batch size, there is an increase in the carrying cost but the set-up cost per unit of the product is reduced; this situation is reversed when the batch size is reduced. Thus there is one particular batch size for which both set up and carrying costs are minimum. This size of a batch is known as economic or optimum batch quantity
EBQ Where :-

2 AS/C ^1/2

A= annual requirements of the product S = setting-up costs per batch C = carrying cost per unit of inventory per annum

Example
We make a batch of dough using the following

weights:
1) FLOUR 100 pound 2) WATER 66 pound 3) SALT 2 pound 4) YEAST 1.5 pound A simple arithmetic tells us that we are making 169.5 pound of dough. We now consider the cost per pound of our ingredients: 1) FLOUR = $.18 per pound 2) WATER = $.00 per pound

3) SALT = $.09 per pound

4)YEAST = $.56 per pound

 Note that although we are considering the water to be free, it is still included

in the dough weight. Now we compute the entire batch cost:

1. FLOUR $.18 X 100=$18.00 2. WATER $.00

3. SALT $.09 X 2=$.18

4. YEAST $.56 X 1.5=$.84 5. BATCH COST $19.02 We now know that it has cost us $19.02 in ingredients to make 169.5# of

dough. To compute the cost of one pound of dough, we divide the batch cost by the dough weight:
1. 19.02/169.5=$.112 2. BATCH COST per unit = 1.2 per pound of dough.

References
http://www.accountingclassroom.com/images/Job

Batch_Costing_ACCAPartD_F2_QN05.pdf http://www.rapidpdfs.com/doc/batch+costing Cost Accounting by Jawahar Lal & Seema Srivastava www.icai.org/resource_file/19070comp_sugans_p e2_costacc_cp7.pdf

Thank you