## Batch Costing
Batch costing is a form of specific order costing where articles are manufactured in predetermined lots (batches). The cost object is a batch, not a single unit of output (as in unit costing).
- A batch is a number of units processed simultaneously through a manufacturing operation; inputs accumulate on the assembly line until the minimum batch size is reached.
- It is uneconomical to make one item at a time. Example: making one pen of a design is far costlier than producing, say, 10,000 pens of the same design in a batch — batching spreads set-up cost and reduces unit cost.
- Cost per unit in a batch = Total cost of the batch ÷ Number of units in the batch.
## Economic Batch Quantity (EBQ)
The batch size chosen is critical to achieving least cost. Total batch-production cost has two opposing components:
- Machine set-up costs — fall as batch size rises (fewer set-ups).
- Inventory holding (carrying) costs — rise as batch size rises (more units held).
| Batch size | Set-up cost | Holding cost |
|---|---|---|
| Larger | ↓ (fewer set-ups) | ↑ (more inventory) |
| Smaller | ↑ (more set-ups) | ↓ (less inventory) |
EBQ is the batch size at which the total of set-up and holding costs is minimum:
> EBQ = √(2DS / C)
>
> where D = Annual demand for the product, S = Set-up cost per batch, C = Carrying cost per unit of production (per annum).
## Job Costing vs Batch Costing
| Job Costing | Batch Costing |
|---|---|
| Non-standard, non-repetitive products made to customer specifications against specific orders | Homogeneous products produced in continuous flow in lots |
| Cost determined for each job | Cost determined in aggregate for the batch, then per-unit |
| Each job is unique and independent | Products in a batch are homogeneous, lacking individuality |