Batch Costing Accounting Source Documents Costs are transferred to the work in process account using the following accounting source documents. Batch costing is used in drug industries, TV sets, Radio. On sale the costs are then transferred from the finished goods inventory account to the cost of sales account in the usual manner.
Meaning and features of job and batch costing
If goods are produced in a batch, there will be reduction in cost of production per unit and more profits for the concern. The other factors considered in determining a batch of articles to be manufactured are the capacity of machines, flow of work, treatment of work-in-progress and such other operation factors. Generally, it happens that production time is lost while setting up for the production. Larger the Batch Size, Lower will be the set-up costs. The cost per article is obtained by dividing the total cost of batch by the member of articles manufactured in the batch. Similar batch units are used as cost units. Advantages of Batch Costing : Following are the main advantages of batch costing as compared to job costing: 1 Accounting work is reduced under batch costing because costing is done in respect of a batch of product of homogeneous jobs. Time taken for execution of job is short.
The cost of material, labor and overhead incurred during the job is accumulated, and when the job is accomplished, these are compared with the quoted price, so as to determine the profit or loss of each job. Overheads are apportioned among the batches on one of the suitable bases as in the case of job costing.
Larger the Batch Size, Higher the Carrying cost because of high average inventory. Job costing refers to costing of jobs that are executed against specific orders whereas in batch costing items are manufactured for stock.
Batch costing is another form of job costing. Thus it can be said that the concept of economic batch quantity is an example of the law of increasing returns and takes advantages of economies of large scale production.
Finally, on completion the total costs of a batch are transferred from its batch cost sheet in the WIP ledger to the finished goods inventory account. Manufacturing cost. Definition of Batch Costing Batch Costing may be understood as a variant of job costing.
Illustration 1: Batch No. Process time taken for each article in a batch is less than generally taken for execution of job.
Economic batch costing
The batch is the unit of production. Cost per unit is determined by dividing the total cost of the batch with number of units produced. Economic Batch Quantity Economic Batch Quantity refers to optimum level of production of quantity of batch at one point so that set up and processing costs and carrying costs are together optimized. They are: 1 The machine capacity available in the factory. The economic batch quantity also helps in eliminating the setting up time involved whenever batches of articles are produced. Overheads are apportioned among the batches on one of the suitable bases as in the case of job costing. On the other hand, if batches are very large it involves more of inventory and it has its own advantages. Batch costing is another form of job costing. Costs are found at the completion of the job. The determination of most economical batch quantity requires consideration of many related factors of costs and economies. Batch costing can be applied to manufacturing and non-manufacturing operations. But, there is only one difference ie Economic Batch Quantity is calculated to fix the level of production at minimum cost but Economic Order Quantity is calculated to fix the level for ordering the purchase of raw materials, stores and spares. This costing method is employed by firms to manufacture a large number of similar items or components, as they pass through the same process and so it is beneficial to ascertain their cost of production collectively. There is a positive relationship between Batch Size and Carrying Costs. Because of this some loss in production time will be there.
There is a positive relationship between Batch Size and Carrying Costs.
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