Batch costing

          Batch costing is a method of costing which is used in industries where production is carried out in batches. It is generally applied in pharmaceutical industries, snack food industries, toys manufacturing industries, spare parts manufacturing industries. 

Meaning:

Batch costing is a type of specific order costing where articles are manufactured in predetermined lots, known as batch. This method is used to ascertain cost & profit of specific batch/ units in specific batch. 

Features:

  • Each batch is treated as a cost unit
  • All costs are accumulated & ascertained for each batch
  • A separate batch cost sheet is used for each batch & is assigned a certain number by which the batch is identified 
  • The cost per unit is ascertained by dividing the total cost of a batch by a number of items produced in that batch. 
Economic batch quantity:
 Economic batch quantity (EBQ)refers to the optimum quantity batch which should be produced at a point of time so that the set up & processing costs & carrying costs are together optimized. 

               Formula: √2AS÷C

Where as,
    A= Annual demand
    S= Set up cost per batch
    C= Carrying cost per unit per year 


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