Page 210 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes order or contract. The method is applicable to general engineering industries which produce
components in convenient economical batches for subsequent assembly or manufacture on mass
scale, comparatively small items of products. Except for the difference that in batch costing, a
batch instead of a job constitute the cost unit for which costs are compiled, the procedure for
batch costing is similar to that of job costing. Separate job cost sheets are maintained for each
batch of components manufactured and for the assembly of finished products. When products
are stocked for sale, a greater degree of control is required.
!

Caution Under this method the cost is ascertained in respect of a batch of goods or
components manufactured.

There are certain products whose cost of production cannot be ascertained in isolation, i.e., for
each and every unit of article produced.
Examples of such products are hardware (such as nuts, bolts, pins, screws, etc.) and Bakery
products (such as breads, cakes, biscuits, etc.). So industries which manufacture products of this
nature make use of batch costing. Other examples of industries which adopt batch costing are
shoe manufacture, toys, ready-made garments, tyres and tubes, drugs and pharmaceuticals, spare
parts and component parts as in the case of automobiles, radios, TV’s, refrigerators, machineries,
etc.
In order to know the cost of production of a batch of articles, a batch cost sheet is prepared.
Difference between Batch Costing and Job Costing
Batch costing does not differ from job costing in respect of accounting procedure. There are two
points of differences between batch costing and job costing. They are:
(a) Under batch costing, a batch of articles produced constitutes a cost unit. But under job
costing, each and every job is treated as a cost, and
(b) Under batch costing, production is taken up to be held in stock sold on demand and also a
receiving specific order from customers. On the other hand, under job costing, production
is undertaken only against specific orders.
The main essentials of batch costing are as under:
(i) This method is used where small parts of considerable number are produced, such as
industries producing machinery parts, machine tools, etc.,

(ii) No special costing principles are involved, each batch constituting a separate unit divided
into sub-units of each piece produced,
(iii) Entire production is divided into economic groups or batches and usual and appropriate
costing methods are applied to each batch or group,
(iv) The advantages of the method are that the unit cost of every group is determined so that
the total production cost is broken down into its constituent parts and profit and loss of
each and every batch is known separately, and
(v) As production cost and volume of sales vary considerably from batch to batch, it sometimes
becomes difficult to allocate overhead charges equitably. It is main drawback of the
method.
Advantages: Following are the main advantages of batch costing:
(i) The accounting work is considerable reduced as a group of homogeneous jobs constitute a
batch,
(ii) It takes the benefit of reduced cost of production arising out of economic batch quantity,

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