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CA Intermediate · Cost and Management Accounting · Unit & Batch Costing

Which of the following best describes the situation in which batch costing is the appropriate costing method?

Batch costing applies when identical units are made together in lots and cost is accumulated for each lot as a whole. The batch is the cost unit, and unit cost is the batch cost divided by the batch quantity. The other options describe contract, process and service costing.

  1. AA single large project is built to a customer's specification over several years
  2. BIdentical units are produced together in lots, and cost is accumulated for each lot as a wholeCorrect
  3. COne continuous process turns raw material into a uniform output, with no separation of lots
  4. DServices are rendered to the public, with cost measured per unit of service

Explanation

Batch costing treats a lot of identical or similar units as one cost unit, accumulating the cost of the whole batch and dividing by the batch quantity. A single large project suits contract costing, continuous output suits process costing, and per-unit services suit service costing.

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