Batch costing
Batch costing accumulates all costs for a group of identical units produced together, treating the batch as the single cost unit. Cost per unit is total batch cost divided by the number of good units produced.
See it move
Batch costing treats an entire production run as a single cost unit. A batch costing €12,000 to make yields 820 units, of which 20 are abnormal spoilage. Dividing €12,000 by the 800 good units gives a cost per unit of €15.00; the spoiled units are excluded so they don't inflate the figure.
The formula
Variables
- total cost of direct materials, direct labour and absorbed overhead charged to the batch (€)
- number of good (acceptable) units produced in the batch, excluding abnormal spoilage (units)
Abnormal spoilage units are excluded from the denominator so that unexpected defective output does not inflate the unit cost of good production.
Check yourself
A bakery produces biscuits in batches of 1,000 packs. Batch 24 incurs total costs of €15,000. At the end of the production run, 100 packs are rejected at the quality check — a proportion consistent with the normal defect allowance. What is the cost per good pack transferred to finished goods?