What is Batch Cost?

Batch cost is the cluster of costs incurred when a group of products or services are produced, and which cannot be more specifically linked to individual products or services within the group.

Examples of Batch Costs

There are several types of batch costs. One is the labor costs associated with the processing of an entire batch, which includes the time required to set up production equipment, conduct inspections, and fill out paperwork pertaining to the batch. Another batch cost is machine setup costs, which include the cost of running samples through equipment prior to initiating actual production. Another batch cost is for material handling, which includes the costs incurred to shift raw materials and work-in-process inventory from one workstation to the next. Finally, a business might incur quality inspection costs as part of its batch processing, which involves inspecting units both during and after a production run, to see if they meet the producer’s quality standards.

Accounting for Batch Costs

For cost accounting purposes, it may be necessary to assign the batch cost to individual units within a batch. If so, the total batch cost is aggregated and divided by the number of units produced to arrive at a unit cost. This unit cost is then assigned to each unit in the batch.