Batch costing
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This document discusses different types of costing methods used in manufacturing including job costing, batch costing, contract costing, and process costing. Job costing is used to determine the costs of specific jobs or orders. Batch costing is a variant of job costing where similar products are manufactured in batches. Contract costing is a variant of job costing applied to construction projects. Process costing is used for mass production of standardized goods and tracks costs at each stage of production. The document outlines key features, advantages, and disadvantages of each costing method.
Batch costing
- 1. CostingJob, Batch, Contract & Process costingSujoykrpaul
- 2. JOB COSTINgOrder costing/ production Order Costing/ Specific Order CostingDetermine the cost of specific jobs or lots of production, work order or project separately,Manufacturing firm like presses, machine-tool and non-manufacturing concern general engg. Workshop & Auto Repair shop,Followed by accounting cycle for jobs,Flow of production is different in every department
- 3. ObjectivesDetermine profit or loss of each job, the actual costs are compared with the estimated costs, so to ascertain correct estimation & separate the profitable jobs from the unprofitable ones.Helps in minimising the losses & maximising profits,Cost per unit can be ascertained
- 4. featuresJobs are ascertained against the order of customers,Production is not meant for stock or future sale,Not a continuous process,Different degrees of attention & skills are required for different jobs,Nature of the job decides the process of each job so, no uniformity in the flow of production,Separate cost sheet for each job
- 5. advantagesDistinguish profitable from the unprofitable jobs,Assist in preparing the estimation,Detailed analysis of cost elements & functions,Helps in future production planning,Cost data helps in preparing budgets,Spoilage & defective work can be discovered,Facilitates in cost plus contracts,Helps management in fixing SP of special orders,Useful for statistical purpose in determining the trends of jobs
- 6. DisadvantagesDemand excellent production material & labor,Expensive & laborious as it involves more clerical work,Historical costing in nature, so it doesn’t give the prompt remedial measures,Costing of minute jobs may leads to inaccurate results,Non-comparable,More chance of mistakes,Not much use for control purpose.
- 7. Batch Costing“the form of specific order costing which applies where similar articles are manufactured in batches either for sale or for use within the company”-ICMAThis system to be utilized when a firm manufacture products in readily identifiable batches or definite lots.“A batch is a cost unit which consist of a group of similar articles, which maintain its identity throughout one or more stages of production”
- 8. FeaturesVariant of job costingJob costing is tailored to meet the customers’ specifications whereas batch costing produced inventory for future sale to customers.Furniture making, Small tool making, clothing & toys and food processing undertakings.
- 9. Contract CostingVariant of job costing,Applies to construction works,Individual cost unit (individual jobs)& cost centre (department or process),
- 10. PROCESS COSTINGICMA London “that form of operation costing, where standardized goods are produced”Charles T. Horngren “process costing deals with the mass production of like-units that usually pass in continuous fashion through a series of production of production steps called operation & steps”Process costing is a method of costing which is used to ascertain the cost of output at each stage of production
- 11. featuresSequential process,Each process is deemed as a cost centreCost are accumulated separately,Chances of process of loss of inputProcess are divided with the units of output to get the average,Completed & semi-finished output are to be expressed in common terms,Two or more products are given equal importance.
- 12. AdvantagesCost can be computed weekly or daily,Cost control & control over production are more effective because of uniform output,Simple cost ascertainment,Less expensiveIndirect expenses can be allocated more accurately,Reliable data can be obtained,Quotations become more easy due to standardized processes.
- 13. DisadvantagesCost obtained at the end of processHistorical costs & their utility for cost control & managerial decision-making is not significant,Inefficiencies in processes can be concealed,Apportionment of joint costs to common products may lead to irrational pricing decisions