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Unit 10: Job and Batch Costing

(iii) The loss of time under job costing arising out of inter-job transfer of materials, labours and Notes
tools is minimised under batch costing,
(iv) There is the advantages of consistent cost of production of every article produced in a batch
under batch costing, and
(v) Supervision becomes easy and more effective by means of spreading over the supervision’s
time over all the units constituting the batch. Thus, the idle time of supervisor’s as well as
workers are eliminated.

Disadvantages: The main disadvantages or limitations of batch costing are:
(i) Determination of a batch from various jobs often pose problem. It is difficult to come across
absolute homogeneity of jobs,

(ii) If the production of a batch is wrongly undertaken, say, owing to sub-standard materials
or defective operations, the whole batch of articles is to be discarded which will become a
great loss to the manufacturer. pharmaceutical and drugs products offer best example to
this point of disadvantage, and
(iii) When quantity of goods to be manufactured differs from customer to customer, again it
becomes difficult to determine the batch.
10.5 Economic Batch Quantity

The concept of economic batch quantity is quite similar to economic order quantity. In batch
costing, the determination of economic batch quantity assumes more importance. In fact,
determining the size of the batch is a problem by itself under batch costing. This is so because, if
the batches are many, the (i.e., quantity of production is less in every job) economies arising out
of large scale production is not taken advantage of. Therefore, it is always necessary to determine
the optimum size of the batch or economic batch quantity before the production is started. The
economic batch quantity also helps in eliminating the setting up time involved whenever a batch
of articles is produced.

Did u know? The concept of economic batch quantity is an example of the law of increasing
returns and takes advantage of economies of large scale production.
By producing the goods in an optimum batch, it reduces the cost of production, thereby maximising
the profit. In determining the economic batch quantity, two conflicting forces operate. They are:
z z production cost which include set up cost and other factors such as loss of time due to
change of work, loss of speed of work when work is frequently changed on different
jobs, wastage in materials, increased supervision cost, all these forces are responsible for
increased cost of production, and

z z production in a very large batch quantity will lead to certain disadvantages such as,
increased wear and tear of machines, breakdown of machines, problem of inspection,
excess defectives of goods, large inventory, locked up capital and so on. Thus economic
batch quantity strikes a balance between these two factors in order to take maximum
benefit from production process.

Different formulas are developed to determine the economic batch quantity. One such formula
is given below:

2US
EBQ =
C
Where, EBQ = Economic batch quantity

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