Job Costing/Batch Costing


In management accounting systems, costs are usually accumulated to meet both external management needs and external reporting requirements.

Examples of these are: –

Internal Management Needs: – Pricing decisions

Determining Product Range

Performance of departments

External Reporting Requirements – Inventory Valuation.

The method of accumulating the cost data depends on the type of product or service the company offers.

Job costing is a method of costing used when cost units can be separately identified and need to be costed individually.

It’s essential features are: –

  • Each job can be accurately identified.
  • Direct costs are charged directly to each job.

Typical application of job costing can be seen in the engineering, shipbuilding, construction and printing industries.

The classification can be further broken down depending on the duration of the job and the number of individual units to be produced.  The main types of job costing and their principal features are: –


“Factory” Sub Costing Comparatively short duration.
  Usually carried out in factory, e.g. furniture, machinery
Batch Costing Similar to above but with larger number of units produced, e.g. production of component parts for bulk orders.
    The job to which costs are assigned is the Batch of units produced.
Contract Costing The duration is usually greater than 1 year.  Typical use would be in the construction field, e.g. housing, roads, bridges, etc.


While these three costing situations may be regarded as very distinct from one another they all possess the characteristics of job costing.


Although reference has been made to manufacturing industries the costing technique can apply to the service industries such as vehicle repair, costing of audits and research projects.

Below is a brief outline of the practical procedures involved in the setting up of a job.

  • A prospective customer approaches the supplier requesting a tender for goods to be supplied.
  • The supplier agrees precise details of items to be supplied, e.g. quantity, quality, size, colour, delivery date, and any special requirements.
  • The suppliers estimating department prepares a price for the job.

This will include direct costs, appropriate overheads and where appropriate the cost of any additional equipment required specially for the job.


  • Finally, the suppliers profit margin is added to give the quoted selling price.

The following is a typical job costing: –

Treatment of Overheads:

Direct costs can be charged to the job on an “actual” or “standard” basis depending on the sophistication of the system in use.

Overheads can be divided into fixed and variable and must be applied to the specific jobs using an acceptable basis.  Such a basis may be direct labour hours, or direct labour cost (depending on the accuracy required and the cost of the clerical work involved to produce the information).

Under/Over Applied Overheads:

Accounting for total factory overhead costs involves: –



  Actual overhead         cost incurred, i.e. the overhead cost incurred on the accruals accounting basis.  This is debited to the Factory Overhead Control.  Corresponding credits are made to Stores Control, Accrued Wages, Accounts Payable, etc.


(b)   Overhead cost applied, i.e. The overhead actually applied to jobs in the period.

This is debited to W.I.P. Control and credited to Factory Overhead applied.  It is computed by multiplying the recovery rate by the number of units of the recover base appropriate to the job rate per hour (RWF3) x 400 Direct labour hours spent on the job = RWF1,200.

Adjustment required to prorate under applied overhead over relevant accounts.

Interim Financial Statements:

The above procedure is used at the year-end.  For the extraction of monthly/quarterly accounts any under/over applied overhead can be  (a) Written off to profit and loss account.

  • Carried forward as an asset/liability to the next month.



  •  is preferred because it evens out the effect of:
  •  Operating at different levels of activity
  •  Seasonal Costs.

However, “unplanned” or unanticipated under/over applied O/H’s should be prorated in the period they occur because they were not expected and do not form part of the expected annual overheads.

Batch costing is a method of costing used when a number of identical items pass through a process or a factory as a distinct and identifiable batch.

It differs from Job Costing in that in job costing the number of items in the job is usually low whereas in Batch Costing the number of identical items is large.  However, many of the principles used in job costing can be applied.  The costs are broken down into cost per unit only when the batch is completed or taken to a stage where common processing stops, e.g. different types of metallic painting or different packaging.


Batch Size:


An important aspect of batch processing is determining the most economical batch size.  This allows a balance to be struck between set up costs and stock holding costs that will minimise the overall cost per unit of items in the batch.


The calculation of the Economic Batch Quantity (EBQ) is similar to that for the Economic Order Quantity (EOQ) in purchasing, but in this case the order costs are replaced by set up costs and the purchase price is replaced by a production cost.

Accounting For Batch Costs:

Batch costing has the attributes of job costing in so far as costs are assembled for each batch.  In addition to materials and to operating labour and overhead costs this would include set-up costs.


Having determined the total cost it is then necessary to apply this cost to the individual units produced.  This is done by the same averaging method used in process costing situations, i.e.:


Batch costs

=            Batch Cost per Unit Total Batch Output

In determining total batch output one often has the problem that units in progress, (at the time of determination of batch output) are at intermediate stages of completion.  This is dealt with by treating such units as equivalent whole units depending on the stage of completion, e.g. 200 units 50% complete are treated as 100 equivalent whole units.  This concept belongs to process costing in which it is extensively used.

The following is an example of batch costing embracing incomplete work-in-progress.


 The CIMA Terminology defines a batch as a “group of similar units which maintains its identity throughout one or more stages of production and is treated as a cost unit”.

 It is a form of specific order costing in which costs are attributed to batches of products. A batch is very similar in nature to job costing, the only real difference being that a number of items are being costed together as a single unit, instead of a single item or service.

Having calculated the cost of the batch, the cost per item of that batch can be determined by dividing the total cost by the number of items produced.

Batch costing can be applied in many situations, including, for example:

  • Where customers order a quantity of identical items;
  • Where a batch of similar items are produced and held in stock awaiting customers orders
  • Where an internal manufacturing order is raised for a batch of identical parts, for example components to be used in production

Examples include a batch of  bakery where items are cooked in batches or a batch of identical teddy bears produced by a toy factory.


 As mentioned, the procedure is similar to job costing. The batch is treated as the job and the costs for the batch are collected on the job card which is then subsequently used to value work in progress.

A cost sheet (or computer file) will be used to record the direct and indirect costs incurred by (or allocated to) the production of the batch. This cost sheet is called a batch cost sheet. When the products (or components) are finished, the batch cost sheet is closed and the products will be transferred to stores or charged to sales at the average cost of the batch.


 Batch costing is usually used where a wide variety of products are held in stock. The cost accountant will be called upon to provide detailed information on product costs for the following areas:

Production Planning / Control

Scheduling to maintain stock levels and to meet fluctuations in demand could pose a major problem. It would require continuous information to be ascertained on set-up costs, stock movements and machine utilisation. (Note the Economic Batch Quantity can be calculated to assist in production scheduling – see section F below).


Management will require regular analyses of product costs and profits. This information will assist in directing sales effort and help to determine sales policy.


Cost information will be required in the development of new products / improving operations.


 Many organisations operate a continuous production line or series of lines which individually perform tasks, the combined result of which is the finished product.

These organisations do not manufacture to the requirements of a specific customer, per se, but they might employ a version of batch costing to attach a cost to their product. In these circumstances, the costs are ascertained for a batch and an average cost per unit is calculated. The difference, however, is in determining the batch. Often, this is done by reference to time (for example an accounting period).

Batch production differs from a continuous production line because with continuous production, the same product is made all the time (or for long periods of time) without interruption. However, Batch production consists of a sequence of production runs, with a different product made in each batch. The costs of setting up the production line for a new batch and cleaning up after a batch has been produced can be significant. Batch set-up costs are charged to individual batches where they can be identified and recorded.


 Bookillbo Limited manufactures embroidered school uniforms


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