Cost and Management Accounting · Unit & Batch Costing

Batch Costing: Meaning, Features and Batch Cost Sheet

Updated 4 October 2026 · Fact-checked

Batch costing is a costing method where a group of identical units is produced together as one batch, and costs are collected for the whole batch. You prepare a batch cost sheet, add materials, labour and overheads, then divide the total by units produced to get cost per unit.

Understand Batch Costing

In batch costing, the cost unit is a batch, not a single product. A batch is a lot of identical or similar units that move through production together. Examples are a lot of garments, a run of medicines, or a set of spare parts.

Batch costing is a variation of job costing. Each batch gets a batch number. Materials, labour and overheads are charged to that number. When the batch is complete, you total the costs and divide by the number of good units to get the cost per unit.

Why does it work? Some costs are incurred once per batch, such as machine set-up, tooling and the issue of a batch of materials. Spreading them over all units in the batch gives a fair unit cost. A bigger batch means a lower set-up cost per unit.

Features:
- Production is in lots, each with its own batch number.
- Units in a batch are identical, so one cost per unit applies to all.
- A batch cost sheet is kept for each batch.
- Used in garments, pharmaceuticals, footwear, components and bakery-type industries.

Advantages: it gives batch-wise cost control, helps in pricing, and reduces paperwork compared with costing each unit. Limitations: it is not suited to non-identical units, and wrong batch sizing can raise cost.

Job costing vs batch costing: in job costing, each job is a single order, usually to a customer's specification, and is unique. In batch costing, a batch has many identical units, often produced for stock or for several orders. Job cost is for the job. Batch cost is total batch cost, then per unit.

Key rules to remember

Total batch cost: Total batch cost = Direct materials + Direct labour + Direct expenses + Factory overheads + Administration and selling overheads (if the cost sheet extends to total cost); Include only the elements the question asks for. Prime cost and works cost are stages on the way.
Cost per unit of a batch: Cost per unit = Total batch cost ÷ Number of good units produced in the batch; If normal spoilage is absorbed, divide by good units. Use the question's treatment of losses.
Set-up cost per unit: Set-up cost per unit = Set-up cost per batch ÷ Batch size; This is why a larger batch reduces cost per unit.
Selling price per unit: Selling price per unit = Cost per unit + Profit per unit; If profit is given as a % on selling price, use cost = (100 − profit %) of price. If on cost, price = cost × (100 + profit %) ÷ 100.
Overhead absorption rate: Overhead rate = Budgeted overhead ÷ Budgeted base (labour hours, machine hours or direct wages); Overheads charged to a batch = rate × the batch's actual base.

How to solve Batch Costing questions

Use this order for any batch costing question. It keeps your working clean and earns step marks.

1Read the question and mark the batch size, the cost elements given, and any wastage, scrap or set-up details.
2Draw the batch cost sheet columns: Particulars, Amount for the batch, Cost per unit.
3Calculate direct materials, direct labour and direct expenses for the whole batch. Convert per-unit data to batch totals by multiplying by the batch size.
4Add set-up or tooling costs once per batch, not per unit.
5Apply overheads using the stated rate or percentage on the correct base, and show the working.
6Total the costs. Adjust for scrap sale or abnormal loss if given, then divide by good units for cost per unit.
7Add profit if the question asks for selling price or total sales value, and check the % base (cost or selling price).
8State the final answer clearly with units and rupees.

Quickest way: Fast batch costing under time pressure

When to use it: Use for numericals where you must find batch cost, cost per unit or selling price, and for MCQs on batch cost.

For MCQs, first work out the batch total, then divide by units. Eliminate options where the set-up cost was treated per unit instead of per batch.
Check the base before applying a % rate. A % on wages is not a % on materials.
Keep per-unit data and batch data separate. Convert everything to batch totals before adding.
In written answers, use a fixed format: Particulars, Batch amount, Per unit. Show each overhead working in one line beneath the sheet.
Round only at the end, and write the final cost per unit with rupees and units.

Common mistakes in Batch Costing

Charging the full set-up cost to each unit instead of once per batch.
Students see 'set-up cost' and add it to the unit cost directly.
Fix: Add set-up cost to the batch total, then divide the total by batch size.
Dividing total cost by units started instead of good units produced.
The batch size is read from the first line and loss details are overlooked.
Fix: Check for spoilage or defectives. Divide by good output after adjusting for scrap value and loss treatment as per the question.
Applying overhead percentage on the wrong base.
Questions give several percentages in one line and students mix them up.
Fix: Underline each base: prime cost, direct wages or material. Write the base next to the rate in your working.
Confusing profit on cost with profit on selling price.
Both are called 'profit of 20%' in haste.
Fix: Read the wording. On selling price: price = cost ÷ (1 − profit rate). On cost: price = cost × (1 + profit rate).
Mixing job costing and batch costing in definitions.
Both use job numbers and cost sheets.
Fix: Remember: a job is unique and usually to customer order; a batch is a lot of identical units where unit cost is the goal.

Worked examples

Example 1

A factory makes a batch of 500 units of component X. Direct materials cost ₹80 per unit. Direct wages are ₹30,000 for the batch. Set-up cost for the batch is ₹5,000; treat it as a direct expense of the batch. Factory overhead is 60% of direct wages. Administration overhead is 10% of works cost. Find the total cost and cost per unit of the batch.

Show the solution

Direct materials = 500 × ₹80 = ₹40,000.
Direct wages = ₹30,000.
Direct expense (set-up cost, charged once per batch) = ₹5,000. This is our stated assumption.
Prime cost = 40,000 + 30,000 + 5,000 = ₹75,000.
Factory overhead = 60% × 30,000 = ₹18,000.
Works cost = 75,000 + 18,000 = ₹93,000.
Administration overhead = 10% × 93,000 = ₹9,300.
Total cost = 93,000 + 9,300 = ₹1,02,300.
Cost per unit = 1,02,300 ÷ 500 = ₹204.60.

Answer: Treating set-up cost as a direct expense, prime cost = ₹75,000; total batch cost = ₹1,02,300; cost per unit = ₹204.60.

Example 2

Batch B-12 has 200 units. Costs: materials ₹36,000; direct wages ₹24,000; direct expenses ₹4,000. Factory overhead is absorbed at ₹5 per labour hour, and the batch took 1,600 labour hours. Selling and distribution overhead is 15% of works cost. The firm wants a profit of 20% on selling price. Find the cost per unit and selling price per unit.

Show the solution

Prime cost = 36,000 + 24,000 + 4,000 = ₹64,000.
Factory overhead = 1,600 × ₹5 = ₹8,000.
Works cost = 64,000 + 8,000 = ₹72,000.
Selling and distribution overhead = 15% × 72,000 = ₹10,800.
Total cost = 72,000 + 10,800 = ₹82,800.
Cost per unit = 82,800 ÷ 200 = ₹414.
Profit is 20% on selling price, so cost is 80% of price.
Selling price per unit = 414 ÷ 0.80 = ₹517.50.

Answer: Cost per unit = ₹414; selling price per unit = ₹517.50.

Exam tips

Always present a batch cost sheet with a per-unit column. Examiners award marks for each element shown separately.
Read whether profit is on cost or on selling price before computing the price. This is a common trap in MCQs.
Set-up cost is a batch cost. Check if the question links it to Economic Batch Quantity, and if so, study that topic too.
For theory questions, write features, advantages and the job versus batch difference as short numbered points.
Show overhead workings in one line each. A wrong total with correct method still earns step marks.

Practice questions from Unit & Batch Costing

Batch Costing in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateBatch Costing: Meaning and Features

Batch Costing: frequently asked questions

What is the difference between job costing and batch costing?

In job costing, each job is a unique order, often to a customer's specification. In batch costing, a group of identical units is made together and the total cost is divided by the units in the batch. Both use cost sheets and a job or batch number.

How do I prepare a batch cost sheet?

List the cost elements in order: materials, labour, direct expenses, prime cost, factory overhead, works cost, then office and selling overheads. Add profit if needed. Keep a column for the batch amount and one for cost per unit.

Is set-up cost charged per unit or per batch?

It is charged per batch. You add it once to the batch total and then divide by the units. This is why larger batches have a lower set-up cost per unit.

Where is batch costing used?

It is used where identical items are made in lots, such as garments, medicines, footwear, spare parts and bakery items. It suits businesses that produce for stock or for several similar orders.