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Cost Accounting · Batch Costing

Batch Costing: Meaning and Features Explained

Updated 10 October 2026 · Fact-checked

Batch costing is a method of costing where a group of identical units is produced together as one batch, and cost is collected for the whole batch. Cost per unit equals total batch cost divided by units in the batch. It is used where products are made in lots, not one at a time.

Understand Batch Costing: Meaning and Features

Some businesses do not make one unique item for one customer, and they do not run a continuous flow either. They make a lot of identical units together, then switch to the next lot. A medicine maker produces 10,000 tablets of one type, then moves to another type. A garment unit cuts and stitches 500 shirts of one design, then changes the design. This is where batch costing is used.

In batch costing, the batch is the cost unit. You open a batch cost sheet (or batch number) and collect material, labour and overheads against it. When the batch is complete, you divide total batch cost by the number of good units to get cost per unit. The batch keeps its identity through the factory, so the cost is traceable.

It is a variant of job costing. In job costing the job is one order. In batch costing the job is a batch of identical units, which may be made for a customer order or for stock. The same job-cost-sheet logic applies, with one extra step: spreading batch cost over the units.

The main objectives are to find the cost and profit of each batch, to control cost by comparing batches, to fix selling price, and to decide a suitable batch size. Batch size matters because each batch carries set-up cost. A larger batch spreads set-up cost over more units but increases stock-holding cost. This leads to the Economic Batch Quantity, studied separately.

Typical users are readymade garments, footwear, pharmaceuticals, toys, electronic components, bakery and engineering parts, spare parts and machine tools. Wherever products are made in lots with distinct start and end, batch costing fits.

Key rules to remember

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.

How to solve Batch Costing: Meaning and Features questions

Use this method for any batch costing question, whether it asks for a cost sheet, a per-unit cost or a theory comparison.

  1. 1Identify the cost unit: confirm the question is about a batch of identical units, not a single job or a continuous process.
  2. 2List the data per batch: units, material, wages, direct expenses and set-up cost. Note which items are per batch and which are per unit.
  3. 3Compute total batch cost: add each element in cost sheet order, showing prime cost, factory cost and total cost.
  4. 4Apply overheads using the rate given (for example % of wages or per labour hour) on the batch's own base.
  5. 5Divide by good units to get cost per unit. Adjust for normal spoilage or scrap value if given.
  6. 6Add profit, if asked, to find the selling price per unit and per batch.
  7. 7For theory questions, state the meaning first, then features, then the contrast with job or process costing in points.

Quickest way: Batch cost per unit in one pass

When to use it: For short numerical or MCQ questions asking cost per unit or selling price of a batch.

  1. Separate per-batch items (set-up, tooling) from per-unit items (material, labour per unit).
  2. Convert per-unit items to batch totals by multiplying by batch size.
  3. Add everything once, then divide by batch size.
  4. For selling price, add profit on cost or sales as stated and divide by units.
  5. Check the answer: it should be above material plus labour per unit by a sensible overhead amount.

Common mistakes in Batch Costing: Meaning and Features

  • Calling batch costing the same as job costing.

    Both use a cost sheet and both trace cost to a work order.

    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.

    Both can involve many identical units.

    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 set-up cost by total units over the year instead of by units in the batch.

    Students treat set-up cost like an annual fixed cost.

    Fix: Set-up cost is incurred once per batch, so divide it by that batch's units.

  • Dividing batch cost by units started instead of good units.

    The question gives input units and output units.

    Fix: Use good units completed. Normal spoilage cost stays in the batch cost.

  • Listing wrong industries, such as steel mills or refineries.

    Students recall any manufacturing industry.

    Fix: Use lot-based industries: garments, footwear, pharmaceuticals, toys, electronic components, spare parts.

Worked examples

Example 1

Sundaram Garments makes a batch of 500 shirts. Material is ₹60,000, wages ₹40,000 and set-up cost ₹5,000 for the batch. Factory overheads are 50% of wages. Profit required is 20% on cost. Find the cost per shirt and selling price per shirt.

Show the solution
  1. Prime cost = 60,000 + 40,000 = ₹1,00,000.
  2. Set-up cost is a batch cost: add ₹5,000, so cost before overheads = ₹1,05,000.
  3. Factory overheads = 50% × 40,000 = ₹20,000.
  4. Total batch cost = 1,05,000 + 20,000 = ₹1,25,000.
  5. Cost per shirt = 1,25,000 ÷ 500 = ₹250.
  6. Profit = 20% × 1,25,000 = ₹25,000. Sales value = ₹1,50,000.
  7. Selling price per shirt = 1,50,000 ÷ 500 = ₹300.

Answer: Cost per shirt is ₹250; selling price per shirt is ₹300.

Example 2

Write short notes on batch costing: meaning, four features and how it differs from job costing.

Show the solution
  1. Meaning: batch costing is a method where cost is accumulated for a batch of identical units produced together, and cost per unit is found by dividing batch cost by units.
  2. Feature 1: the batch is the cost unit and has its own batch number and cost sheet.
  3. Feature 2: units in a batch are identical and lose their identity only after the batch is complete.
  4. Feature 3: set-up cost is incurred per batch, so batch size affects cost per unit.
  5. Feature 4: it is used where products are made in lots, for example garments, pharmaceuticals and spare parts.
  6. Difference from job costing: a job is a single order, usually specific to a customer, and cost is the job's cost; in a batch, total cost is divided over many identical units to get unit cost, and the batch may be for stock.
  7. Difference from process costing: batches have a clear start and finish; process costing is continuous with averaged cost per period.

Answer: Batch costing collects cost per batch of identical units and divides it by units; it is a variant of job costing but differs in cost unit and in per-unit calculation.

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.

Practice questions from Batch Costing

Batch Costing: Meaning and Features in other exams

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

Batch Costing: Meaning and Features: frequently asked questions

What is batch costing with an example?

It is costing where a lot of identical units is treated as one cost unit. If a firm makes 1,000 pens in a batch at a total cost of ₹20,000, cost per pen is ₹20.

What is the difference between job costing and batch costing?

In job costing the cost unit is a single job or order, usually specific to a customer. In batch costing the cost unit is a batch of identical units, and total cost is divided by the number of units to find unit cost.

In which industries is batch costing used?

It is used in industries producing in lots, such as readymade garments, footwear, pharmaceuticals, toys, electronic components, bakery items and engineering spare parts.

Is batch costing a type of job costing?

Yes, it is generally treated as an extension or variant of job costing. The procedure is similar, but the batch is the cost unit and cost per unit is derived from the batch total.