Job and Batch Costing

Recently updated on August 20th, 2023 at 11:41 am

Job Costing

Job costing is accounting which tracks the costs and revenues by “job” and enables standardized reporting of profitability by job. For an accounting system to support job costing, it must allow job numbers to be assigned to individual items of expenses and revenues. A job can be defined to be a specific project done for one customer, or a single unit of product manufactured, or a batch of units of the same type that are produced together.

To apply job costing in a manufacturing setting involves tracking which “job” uses various types of direct expenses such as direct labour and direct materials, and then allocating overhead costs (indirect labor, warranty costs, quality control and other overhead costs) to the jobs. A job profitability report is like an overall profit & loss statement for the firm, but is specific to each job number.

Job costing may assess all costs involved in a construction “job” or in the manufacturing of goods done in discrete batches. These costs are recorded in ledger accounts throughout the life of the job or batch and are then summarized in the final trial balance before the preparing of the job cost or batch manufacturing statement.

Job Costing Allocation of Materials

In a job costing environment, materials to be used on a product or project first enter the facility and are stored in the warehouse, after which they are picked from stock and issued to a specific job. If spoilage or scrap is created, then normal amounts are charged to an overhead cost pool for later allocation, while abnormal amounts are charged directly to the cost of goods sold. Once work is completed on a job, the cost of the entire job is shifted from work-in-process inventory to finished goods inventory. Then, once the goods are sold, the cost of the asset is removed from the inventory account and shifted into the cost of goods sold, while the company also records a sale transaction.

Job Costing Allocation of Labor

In a job costing environment, labor may be charged directly to individual jobs if the labor is directly traceable to those jobs. All other manufacturing-related labor is recorded in an overhead cost pool and is then allocated to the various open jobs. The first type of labor is called direct labor, and the second type is known as indirect labor. When a job is completed, it is then shifted into a finished goods inventory account. Then, once the goods are sold, the cost of the asset is removed from the inventory account and shifted into the cost of goods sold, while the company also records a sale transaction.

Job Costing Allocation of Overhead

In a job costing environment, non-direct costs are accumulated into one or more overhead cost pools, from which you allocate costs to open jobs based upon some measure of cost usage. The key issues when applying overhead are to consistently charge the same types of costs to overhead in all reporting periods and to consistently apply these costs to jobs. Otherwise, it can be extremely difficult for the cost accountant to explain why overhead cost allocations vary from one month to the next.

The accumulation of actual costs into overhead pools and their allocation to jobs can be a time-consuming process that interferes with closing the books on a reporting period. To speed up the process, an alternative is to allocate standard costs that are based on historical costs. These standard costs will never be exactly the same as actual costs, but can be easily calculated and allocated.

Features of job costing:

(a) It is a Specific Order Costing.

(b) The job is carried out or a product is produced to meet the specific requirements of the order. It may be related to single unit or a batch of similar units.

(c) It is concerned with the cost of an individual job or batch regardless of the time taken to produce it, but normally short duration jobs.

(d) Costs are collected to each job at the end of its completion.

(e) The costs of each job is ascertained by adding materials, labour and overheads.

(f) Only prime cost elements are traceable and the overheads are apportioned to each job on some appropriate basis and sometimes it is difficult to select a suitable method of absorption of overheads to individual jobs.

(g) Standardization of controls is comparatively difficult as each job differs and more detailed supervision and control is necessary.

(h) Work-in-progress may or may not exist at the end of the accounting period.

Advantages of Job Costing:

(a) The profit or loss made on each job can be measured if cost is set against the price tendered for the job.

(b) It generates the cost data useful for the analysis and control by the management.

(c) It highlights whether or not a job is likely to be profitable or not.

(d) It readily fits into the double entry system, and lends itself to performance evaluation and review of costs.

(e) Job costing enables a comparison to be made with performance on other jobs so that inefficiencies are identified and rectified.

(f) Some jobs are negotiated on a ‘cost plus’ basis, if there is difficulty in estimating a price for a certain job and the customer agrees to pay the cost of the job plus an agreed percentage as a profit margin. In cost plus jobs it is essential to maintain reliable costing records.

(g) The cost incurred to date on the job are known before the job is completed, and any mistakes or excessive costs show up at an early stage.

The major disadvantage of Job costing is that it is too expensive, time consuming in maintenance of cost records for each job undertaken.

Batch Costing

Batch Costing is used where articles are produced in batches and held in stock for assembly of components to produce finished products or for sale to customers. Costs are collected against each batch. When the batch is completed cost per unit is computed by dividing total cost by the number of units in each batch.

Batch Costing is used for producing articles like radio, television, watches, pen etc. where a large number of components are assembled to complete the finished products. If the components are produced in batches of large quantity it becomes economical and reduces overall cost of the product. In Batch Costing the important problem is to determine the optimum size of the batch or how much to produce.

Like Economic Order Quantity for materials the Economic Batch Quantity can be derived with the help of table, graph or mathematical formula since production under Batch Costing Method involves two elements of cost namely.

1) Setup or preparation costs which remains fixed per batch irrespective of the size of the batch and

2) Carrying Cost or Storage Cost which vary directly with the size of the batch.

Nature and Uses

Batch costing is a modified form of job costing. While job costing is concerned with costing of jobs that are executed against specific orders of the customers, batch costing is used where articles are manufactured in definite batches. The articles are usually kept in stock for selling to customers on demand.

The term batch refers to the ‘lot’ in which the articles are to be manufactured. Whenever a particular product is required, one unit of such product is not produced but a lot of ‘say’ 500 or 1,000 units of such product is produced. It is therefore also known as “Lot Costing”.

This method of costing is used in case of pharmaceutical or drug industries, ready-made garment factories, industries manufacturing component parts of radios, television sets, watches etc. The costing procedure for batch costing is similar to that under job costing except with the difference that a batch becomes the cost unit instead of a job.

Separate job cost sheets are maintained for each batch of products. Each batch is allotted a number. Material requisitions are prepared batch wise, the direct labour is engaged batch wise and the overheads are also recovered batch wise. Cost per unit is ascertained by dividing the total cost of a batch by number of items produced in that batch. Ordinary principles of inventory control are used.

Production orders are issued only when the stock of finished goods reaches the ordering level. In case the batches are repetitive, the costing work is much simplified.


  1. The batch is the cost unit.
  2. The batch cost sheet is prepared in the similar manner as it is done in case of job costing. It shows essentially the same information in respect of the batch that job cost sheet shows in respect of a job.
  3. Economic batch quantity is calculated after considering set up cost, carrying cost and annual demand.
  4. Batch Account is opened for each batch. All direct materials, direct labour and production overheads are debited to the Batch Account. After completion, batch cost is transferred to cost of sales.


Cost per Unit = Total Batch Cost/ Total units in a Batch

For each and every batch, the cost sheet is prepared and maintained, by allotting the batch number. There is batch wise preparation of material requisition note, engagement of labor and recovery of overheads.

This costing method is employed by firms to manufacture a large number of similar items or components, as they pass through the same process and so it is beneficial to ascertain their cost of production collectively.

Job costing vs. Process costing

Job costing (known by some as job order costing) is fundamental to managerial accounting. It differs from Process costing in that the flow of costs is tracked by job or batch instead of by process.

The distinction between job costing and process costing hinges on the nature of the product and, therefore, on the type of production process:

Process costing is used when the products are more homogeneous in nature. Conversely, job costing systems assign costs to distinct production jobs that are significantly different. An average cost per unit of product is then calculated for each job.

  • Process costing systems assign costs to one or more production processes. Because all units are identical or very similar, average costs for each unit of product are calculated by dividing the process costs by the number of units produced.
  • Many businesses produce products with some unique features and some common processes. These businesses use costing systems that have both job and process costing features.
Job Costing Batch Costing
Product production process Each product has specific job orders, each of which follows a distinctive process of production. Products are homogeneous and they are produced in a continuous flow.
Purpose The main purpose of job costing is to accumulate all the costs incurred for completing a job. The main purpose of batch costing is to ascertain the cost of each component produced in a batch. For this, the total cost of one batch is calculated first.
Cost Calculation Costs are determined on a job basis. Costs are determined on a batch basis.
Scope of the Costing Job costing includes batch costing. Batch costing is a variant of job costing. Here, costs are accumulated for specific batches of similar products.
Supervision and Control As each job is different, there can’t be any standardization of controls. Careful supervision and strict control are necessary to avoid wastage of materials, machinery, and other resources. Comparatively, fewer controls are required since products are manufactured in batches and share the same set of resources.
Cost units In this method of costing, cost units, i.e., jobs are separately identified and need to be separately costed. Here, a batch is a cost unit that consists of a readily identifiable group of product units.
Adaptability It is useful in industries that accept orders as per the requirements of the customer. It is useful in industries where identical products are produced in large quantities.

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