CA PPT.pptx

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MEANING

• Batch costing is used for calculating total costof each batch.

• Batch is small group of units which isproduced for production purposes

• All raw material is supplied on batch basis andother expenses are also paid on the basis ofeach batch.



• For example, in the drugs industry, producer will make the batch oftablets instead of producing single tablet. This will be easy to sellthat batch in market. So, in order to calculate cost of each batch, we

will calculate:

Material Cost Per

Batch

Labor Cost PerBatch

OtherExpenses PerBatch.

Cost OfEachBatch

If we want to calculate cost per unit, we have to divide total batchcost with total batch units.



Features

• Each batch is treated as a cost unit

• All costs are accumulated & ascertained for each batch

• A separate batch cost sheet is used for each batch & is

assigned a certain number by which the batch isidentified.

• The cost per unit is ascertain by dividing the total cost ofa batch by the number of items produced in that batch



Industries Where Batch Costing Is Applied

• Readymade garment manufacturing industries

• Pharmaceutical/Drug Industries

• Spare part & components manufacturing industries

• Toy manufacturing industries

• Tire & tube manufacturing industries



Setting up & processingcost

• The setting up &processing costsrefer to the cost incurred for settingup &processing operations before the

start of production of a batch.• There is a inerse relationship

between batch si!e and set up &

processing costs.



"arge thebatch si!e

"ower the setup costs

because of

lowerbatches.

#maller the

batch si!e

$igher theset up costs

because ofmorebatches.



Carrying costs

• The carr%ing costs refer to the costincurred in maintaining a gien leelof inentor%.

• There is positie relationshipbetween batch si!e and carr%ingcosts.



"arger thebatch si!e

$igher thecarr%ing

costsbecause of

higheraerageinentor%

#maller thebatch si!e

"ower thecarr%ing

costsbecause oflower

aerage



Trade of between set up costs & carrying costs

• The optimum uantit% of batch whichshould be produced at a point of timeis determined after achieing a trade

o' between set up costs and carr%ingcosts .

• #uch batch si!e is (nown as EB)

because annual total costs of set upand carr%ing is minimum at thisbatch si!e.



Economic batch quantity

• Economic batch quantity refers to the optimum

quantity batch which should be produced at a point oftime so that the set up and processing cost and carryingcost are together optimized.



EB)*

+ or A , Annual demand

# , #et up cost per batch

C , Carr%ing costs per unit per %ear.



-ow with following simple example we can explainEconomic batch si!e or uantit% which we shouldhae to produce.

Compute the economic batch uantit% for a compan%using batch costing with the following information.

Annual +emand for the component /0111

#et2up cost per batch 3s. 4/1

Carr%ing Cost per 5nit of 6roduction 3s. 1.78

EB)*

Economic Batch )uantit% * 9: / ; /0111 ; 4/1< =1.78 < * 0111 units



Advantage

• the adantage of batch production is that the compan%that uses it has a ariet% of products rather than >ust onet%pe so therefore it gies customer a larger choice andhence a larger possibilit% of sales.

•

Another adantage is that the compan% is reducing itsris( on simpl% concentrating on one product? it producesa ariet% of di'erent ones of the same t%pe.

• The adantage of @ow production is that the compan%using it can mass produce man% items at once which

would would reduce the unit cost hence reducing theprice and possibl% increasing sales. t ma% thereforedeelop a good brand name for low prices.



Disadvantage

• The main disadvantage of batch production is that there's aperiod of time for which the machinery is being changedand this causes the productivity to stop completely whichthe could cause the workers to sit idle; basically the work

stops.• The main disadvantage is that the work is quite repetitivefor workers and can cause demotivation (imagine sitting ata conveyor belt all day tightening the same screw!) whichleads to a poor quality/productivity. Also opposite to batch

production, the company is only producing one type ofproduct therefore it's concentrating all of its risk on onegood.



Batch Costing vs

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