BATCH COSTING –AN OVERVIEW:
Just like job/order costing, BATCH COSTING is an important form of specific order costing. Job costing is generally defined as a process in which the production is done against specific orders whereas under Batch costing, the manufacturing is done to maintain stock.
When orders are received from different customers, there are some common products among the orders. Then production orders for such common products are issued for batches, consisting of predetermined quantity for each type of product. Batch costing method is adopted in this case to determine the cost of each batch. Total cost of batch is divided by the number of units in the batch to find out the cost per unit.
The method of batch costing is said to be commonly applied among the manufacturers of garments, spare parts, biscuits and pharmaceutical enterprises etc.
JOB COSTING VS BATCH COSTING:
- In case of job costing, work or job is taken as an identifiable unit and the cost of each job is measured and accumulated separately whereas in batch costing, a batch represents number of small order to be passed in batches. Each batch is treated as a unit of cost and hence, cost for each batch is measured separately.
- Job costing method is suitable where the production is done on customer’s specific orders such as motor workshops, printing press etc. whereas in batch costing items are manufactured for stock such as spare part or component manufacturers, garment manufactures etc.
ECONOMIC LOT SIZE/BATCH QUANTITY:
A finished product requires different products for assembly and may be manufactured in batches. A batch can have any number of units of components. But any quantity of batch is said to be optimum when the setting up as well as the carrying cost is minimum and such optimum quantity is referred to as Economic lot size or Economic batch quantity.
NEED FOR DETERMINING ECONOMIC LOT SIZES:
It is important for industries adopting for batch costing method, to determine the economic lot size. Every time the production is started, there is a need for some ‘setting the tool’ time which can result to some loss in the production time. But predetermined economic lot sizes can make maximum production possible and hence reduces the cost per unit.In the end such large production at one one run of machinery will leads to accumulation of inventory and cost related thereto.