CMA Intermediate · Cost Accounting

Batch Costing: formula sheet

Full chapter guide

Key formulas

Total batch cost: Batch cost = Direct material + Direct labour + Direct expenses + Factory overheads (+ Administration and selling overheads, if full cost is asked); Collected against the batch number on the batch cost sheet.
Cost per unit of a batch: Cost per unit = Total batch cost ÷ Number of good units in the batch; Use good output. If spoilage is normal, its cost is absorbed by good units.
Selling price per unit: Selling price per unit = (Total batch cost + Profit) ÷ Units in the batch; If profit is a % on cost, profit = % × batch cost. If profit is a % on sales, sales value = batch cost ÷ (1 − %), then divide by units to get the price per unit.
Set-up cost per unit: Set-up cost per unit = Set-up cost per batch ÷ Units in the batch; Set-up cost is fixed per batch, so per-unit cost falls as batch size rises.
Prime cost of batch: Prime cost = Direct materials + Direct labour + Direct expenses; Include setting-up labour or materials if they are traceable to the batch.
Factory (works) cost: Factory cost = Prime cost + Factory overheads absorbed; Adjust for opening and closing work in progress if given.
Cost of production: Cost of production = Factory cost + Administration overheads absorbed; Use the basis of absorption stated in the question.
Cost of sales: Cost of sales = Cost of production + Selling and distribution overheads; Selling overheads are usually charged on units sold.
Cost per unit: Cost per unit = Total batch cost ÷ Units produced (good units); If normal spoilage exists, divide by good units.
Overhead absorption: Overhead absorbed = Rate × Base (for example % of direct wages, or rate per hour × hours); Use the base given for that batch.
Profit and selling price: Selling price = Cost of sales + Profit; Profit on cost = % × cost; Profit on sales = % × selling price; Check whether the profit is on cost or on sales.
Basic EBQ formula: EBQ = √(2 × D × S ÷ C); D = annual demand (units), S = set-up cost per batch, C = carrying cost per unit per year. Assumes the whole batch is added to stock at once.
Carrying cost from a percentage: C = carrying cost % × cost per unit; Use when the question gives carrying cost as a percentage of unit cost.
EBQ with production rate: EBQ = √[(2DS ÷ C) × (p ÷ (p − d))]; p = production rate, d = demand or usage rate, with p > d. p and d must be in the same time unit (both daily, or both annual). Use when stock builds up gradually during production.
Number of batches per year: Number of batches = D ÷ EBQ; Round only if the question asks; the exact value is used for cost comparison.
Total annual cost of set-up and carrying: Total cost = (D ÷ Q) × S + (Q ÷ 2) × C; Q = batch size. Valid for the basic model with average stock of Q ÷ 2. At EBQ, both parts are equal.
Minimum total annual cost at EBQ: Minimum total annual cost = √(2 × D × S × C); This is the total of annual set-up cost and annual carrying cost at the EBQ. Applies to the basic model only.
Cost per good unit with normal spoilage: (Total batch cost − Cost of abnormal units − Sale value of normal spoilage) ÷ Good units; Use when spoilage is partly normal. The sale value of normal spoilage reduces the batch cost. Abnormal units are removed at cost, and their sale value is credited against the abnormal loss in Costing P&L.
Abnormal spoilage charged to Costing P&L: Cost of abnormal spoiled units − Their sale value; Cost is taken per unit up to the point of rejection. If spoilage is detected at the end of the batch, use the average cost per unit. Only the net loss goes to Costing P&L. The sale value of abnormal spoilage is credited against the abnormal loss there, while the sale value of normal spoilage reduces the batch cost.
Rework cost, normal and specific to batch: Charged to the batch; Add to batch cost before dividing by good units.
Rework cost, normal and general to the process: Charged to factory overhead; It is then absorbed in all batches through the overhead rate.
Rework cost, abnormal: Charged to Costing Profit and Loss Account; Never loads good output.
Set-up cost per unit: Set-up cost per batch ÷ Units in the batch; Use good units if the question says to spread over good output.

Quick revision

A batch is a group of identical units produced together and costed as one job.
Cost per unit = total batch cost ÷ good units produced.
Set-up cost is incurred once per batch, so it is spread over the batch quantity.
EBQ = √(2DS ÷ C), with D as annual demand, S as set-up cost per batch and C as carrying cost per unit per year.
At EBQ, total set-up cost equals total carrying cost.
Number of batches in a year = annual demand ÷ EBQ.
Normal spoilage cost is absorbed by good units.
Abnormal spoilage is charged to the Costing Profit and Loss Account, not to the batch.
Scrap value of normal spoilage reduces the batch cost.
Normal rework cost is charged to the batch (if specific to it) or to production overheads (if common to all jobs). Abnormal rework cost is charged to the Costing Profit and Loss Account.
Write the cost sheet with all headings and show workings for step marks.

Common mistakes

Calling batch costing the same as job costing. Fix: Remember the cost unit: one job is a single order, a batch is a group of identical units. Batch costing divides total cost by units.
Confusing batch costing with process costing. Fix: Batch costing has a distinct start and end for each lot and cost is tracked per batch. Process costing is continuous and uses averages per process and period.
Dividing setting-up cost by one unit instead of the batch. Fix: Treat setting-up as a batch cost. Add it to the total and then divide by units.
Using the wrong base to absorb overheads. Fix: Underline the base in the question and apply the rate only to that base for that batch.
Using monthly demand with an annual carrying cost. Fix: Convert D and C to the same period, normally a year, before substituting.
Forgetting to convert a carrying cost percentage into rupees. Fix: Multiply the percentage by cost per unit first, then use that amount as C.
Charging abnormal spoilage to the batch. Fix: Only normal loss loads the good units. Send abnormal loss, net of sale value, to Costing P&L.
Ignoring the sale value of spoiled units. Fix: Always deduct the sale value from the loss before charging it anywhere.

Exam tips

For theory, structure the answer as meaning, features, industries, then a contrast with job costing, to cover what examiners usually look for.
Show the cost sheet with subtotals (prime cost, factory cost, total cost) so you earn step marks even if the final figure goes wrong.
In MCQs, check whether the question asks for cost per unit or total batch cost, and whether set-up cost is per batch.
Do not skip units: write the batch size next to every division you do.
Write the cost sheet in the standard order with subtotals. Marks are given for the layout.
Read the profit wording twice: on cost or on sales.
Show overhead rate working notes under the statement.
In MCQs, check whether the question wants the total or the per-unit figure before picking an option.