Batch cost
| Batch cost |
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| See also |
Batch cost - it is a type of job costing. "Batch costing is used where articles are manufactured in definite batches and held in stock for assembly of components to produce finished product or for sales to customers generally"[1]. This is a form of costing "which applies where a large quantity of identical articles are manufactured as a batch [2]." The most popular forms of batch are [3]:
- when a customer buys a quantity of the same items, or
- where an internal industrial production order is raised for a batch of the same parts, subassemblies or products to complete supply.
In other words, costing for batches are similar to costing jobs. The batch can be perceived as a job during manufacture. Job costing relates to costing of jobs that are made to a client's particular requirements. On the other hand, batch costing is used in situation, where articles are produced in production run [4].
Under this method, the accumulation of costs are done for specific batch[5].
The cost per units is more often calculated by dividing the total batch cost by the total number of goods produced. For example, in pen manufacturing industry it may be too costly to create one pen of a particular image, at a right time to meet demand of one customer. On the other hand, manufacturing of 60,000 pens of the same design would lower the cost to a great extent. The complete pens are held in stock for the future sale on demand, stock control principles are put into place, so when the reorder level is reached, a new production order is issued[6].
The purpose of batch cost
This type of costing is the most popular in the engineering component industry, clothing and footwear manufacture and similar industries[7]. Where the process of manufacturing relating to certain goods are complex in nature, any of fundamental method of costing cannot be used for the calculation cost. So to conclude, there are 2 classes of costing methods - specific order costing and process costing. In specific order costing we can distinguish job costing and contract costing. The main fundament of process costing are batch costing, operating costing and continuous process of process costing[8].
Author: Filip Fikas
Footnotes
- ↑ B. K. Bhar, (1990), Cost Accounting methods and problems, Academic Publishers
- ↑ T. Lucey, (2002), Costing, Cengage Learning EMEA
- ↑ T. Lucey, (2002), Costing, Cengage Learning EMEA
- ↑ B. K. Bhar, (1990), Cost Accounting methods and problems, Academic Publishers
- ↑ M. Dutta (2004), Cost Accounting: Principles And Practice, Pearson Education India
- ↑ B. K. Bhar, (1990), Cost Accounting methods and problems, Academic Publishers
- ↑ T. Lucey, (2002), Costing, Cengage Learning EMEA
- ↑ M. Dutta (2004), Cost Accounting: Principles And Practice, Pearson Education India
References
- Cooper, R., & Kaplan, R. S. (1991). Profit priorities from activity-based costing. Harvard business review, 69(3), 130-135.
- Hundal, M. S. (1997). Product costing: a comparison of conventional and activity-based costing methods. Journal of Engineering Design, 8(1), 91-103.
- Saniuk, A., Saniuk, S., & Witkowski, K. (2011). Using Activity Based Costing in the metalworking processes. In Conference Proceedings of 19th International Metallurgical and Materials Conference METAL 2010 (pp. 1328-1333).
