Costing methods - Job and batch costing records

Learning Outcomes

After reading this article, you will be able to distinguish between job and batch costing methods, identify situations where each is appropriate, and prepare cost records for jobs and batches. You will understand how costs are recorded and assigned in each method, and use cost cards to trace material, labour, and overhead. By the end, you should be able to interpret cost data and explain the role of job and batch costing in management accounting.

ACCA Management Accounting (MA) Syllabus

For ACCA Management Accounting (MA), you are required to understand the purpose and operation of costing methods for different types of production. In particular, revision on this topic should include:

• The definition and characteristics of job costing and batch costing
• When job and batch costing methods are appropriate
• How to prepare and interpret job and batch costing records
• Traceability of material, labour, and overhead to individual jobs or batches
• The use and significance of job cards, batch cost sheets, and cost accumulation
• Calculation of cost per unit for jobs and batches
• The link between job/batch costing and management decision-making

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which production environment is best suited to job costing?
   1. Mass production of identical goods
   2. Unique customer orders
   3. Continuous process industries
2. What is recorded on a job cost card?
   1. Only overhead costs
   2. All direct material, labour, and overhead costs for a specific job
   3. Selling expenses only

3. In batch costing, how is the unit cost for each item produced in a batch calculated?

4. True or false: Job and batch costing methods can both use predetermined overhead rates.

Introduction

Costing methods are essential in management accounting for tracing, recording, and controlling costs in various production settings. Job costing and batch costing are two methods used when output can be separated into specific, identifiable orders or groups. The choice of method depends on how goods or services are produced and delivered.

Key Term: job costing
A method of accumulating costs for work undertaken according to specific customer orders, where each job is treated as a unique, separately costed unit.

Key Term: batch costing
A costing method used when identical items are manufactured in groups, with costs collected for the entire batch and then averaged over the units produced.

JOB AND BATCH COSTING: FEATURES AND PURPOSE

Job and batch costing fall under specific order costing, where costs are tracked to particular jobs, contracts, or batches. Both record the direct and indirect costs involved in producing a product or a group of similar products.

Job costing

Job costing is used in industries where production is driven by specific customer requirements. Each job can differ significantly in terms of materials, labour, and purpose. Examples include construction projects, specialist engineering, or bespoke furniture manufacturing. The main focus is to determine the actual total cost of each job for profitability analysis, pricing, and cost control.

Costs accumulated for each job include:

• Direct materials: All materials issued to the job
• Direct labour: The wages incurred for employees working on the job
• Direct expenses: Any costs directly attributable to the job
• Production overhead: Allocated or absorbed share of indirect costs

A separate job card (or job cost sheet) is maintained for each job.

Batch costing

Batch costing is used when a group of identical items is produced together as a batch. It is common in manufacturing environments where setup costs are significant, and efficiency requires producing multiple units together (e.g., bakery products, printed materials, or clothing).

The total cost for a batch is accumulated and then divided by the number of items in the batch to obtain the cost per unit. This method allows for cost efficiencies in production runs and assists in setting selling prices or investigating production cost variances.

Comparison Table

Worked Example 1.1

A printing company receives a customer order to print marketing brochures. The order consists of 5,000 brochures of the same design. Explain whether job or batch costing should be used and how costs would be recorded.

Answer:
Batch costing would be appropriate, since the production run consists of identical units (brochures) produced at the same time. All costs (materials, labour, overhead) related to this customer order are accumulated to the batch. The total costs are then divided by 5,000 to get the unit cost per brochure. A batch cost sheet records this information.

COST RECORDS IN JOB AND BATCH COSTING

Effective costing relies on keeping accurate records for each job or batch. The main tools are cost cards and cost sheets, which document how materials, labour, and overhead are assigned.

Recording the costs

For both methods, cost accumulation follows the same logic:

• Direct materials: Traced from material requisition notes to the job/batch
• Direct labour: Hours spent recorded on time sheets or job tickets and costed at wage rates
• Direct expenses: Specific expenses charged directly to the work
• Production overheads: Allocated or absorbed using a predefined basis (e.g., machine hours, labour hours)

All entries for a job or batch are summarized on a cost card.

Key Term: cost card
A document summarising all direct materials, labour, expenses, and overheads applied to a particular job or batch, used to determine total and unit cost.

Worked Example 1.2

**A workshop completes a custom metal gate for a client. The following details are available:

• Direct materials: $180
• Direct labour: 8 hours @ $20/hour
• Overhead absorbed: $10/hour
  Prepare the job cost card and the total cost of the job.**

Answer:
Direct materials: $180
Direct labour: 8 × $20 = $160
Overhead: 8 × $10 = $80
Total job cost: $180 + $160 + $80 = $420

BATCH COSTING AND COST PER UNIT

Unlike job costing, batch costing requires dividing the total batch cost to get the cost per item.

Unit cost in a batch = Total batch cost ÷ Number of units in batch

Batch costing enables comparison of efficiencies between batches, especially if batch size, setup costs, or input quantities vary.

Worked Example 1.3

**A bakery produces a batch of 500 cookies. Costs for the batch are:

• Direct materials: $125
• Direct labour: $100
• Overhead allocated: $75
  Calculate (a) the total cost of the batch, and (b) cost per cookie.**

Answer:
(a) Total batch cost = $125 + $100 + $75 = $300
(b) Cost per cookie = $300 ÷ 500 = $0.60 per cookie

Exam Warning

In batch costing, always calculate the unit cost by dividing total batch cost by the actual output quantity. Failing to account for losses, wastage, or incorrect batch size will lead to mistakes in cost per unit.

JOB CARDS AND BATCH COST SHEETS

Maintaining proper cost records is essential for tracking performance, preparing quotations, and analyzing variances.

• Job Cost Card: Shows all costs linked to a particular job, including dates, quantities, material issued, labour hours worked, overhead rates, and completion status.
• Batch Cost Sheet: Shows direct and indirect costs for a whole batch and supports unit cost calculations.

Both should reflect actual quantities and costs wherever possible. Predetermined or standard costs may be used for budgeting or comparing results.

Key Term: overhead absorption
The process of charging a fair share of indirect (overhead) costs to jobs or batches, usually using a rate based on labour or machine hours.

Key Term: specific order costing
Costing methods, such as job and batch costing, where costs are traced to separately identifiable work orders based on customer or production requirements.

LIMITATIONS AND USE IN DECISION MAKING

Job and batch costing provide clear cost traceability, aid cost control, and support pricing decisions. However, both require considerable administrative effort to record costs accurately. Incorrect allocation of overheads or overlooking indirect costs can lead to misleading job or batch profitability figures.

These costing methods support management by:

• Identifying unprofitable jobs/batches
• Supplying cost data for quoting prices
• Analysing variances when actual costs differ from estimates

They also provide the basis for budget performance analysis and continuous improvement.

Revision Tip

Review the flow of information on a job or batch cost card and practice tracing material, labour, and overheads for a variety of job and batch examples.

Summary

Job and batch costing are used when output can be assigned to specific jobs or groups of identical units. Job costing accumulates costs for unique, customer-driven work, while batch costing is used for groups of identical units produced together. Both use job cards or batch cost sheets to record materials, labour, and overhead. Accurate records are essential for cost control and decision-making. The total cost is traced for the job or batch, and batch costing requires further division by units to obtain the unit cost. Choosing the appropriate costing method ensures relevant and reliable cost information for management and external pricing.

Key Point Checklist

This article has covered the following key knowledge points:

• The definition and characteristics of job and batch costing
• Appropriate production environments for each method
• How to record and accumulate costs for jobs and batches
• The use and content of job cards and batch cost sheets
• Calculation of unit cost in batch costing
• The process of overhead absorption and its impact on cost records
• Purposes and limitations of job and batch costing information

Key Terms and Concepts

• job costing
• batch costing
• cost card
• overhead absorption
• specific order costing