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