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ACCA Applied Knowledge · Management Accounting · Cost accounting methods

Which statement about batch costing is correct?

Batch costing treats a group of identical units as a single job. Costs are accumulated for the whole batch and then divided by the number of units to obtain the unit cost. It differs from process costing, which suits continuous production, and from contract costing.

  1. AIt applies to a single large contract where each job is unique and costs are accumulated over several periods
  2. BIt is a form of specific order costing where a group of identical units is treated as one job, and the batch cost is divided by the number of units in the batchCorrect
  3. CIt is used for continuous production where costs are averaged over equivalent units
  4. DIt is used only for service organisations that have no physical output

Explanation

Batch costing is a type of specific order costing in which each batch is a cost unit for accumulation, and unit cost equals total batch cost divided by units in the batch. Process costing relates to continuous production, and contract costing to single large projects.

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