Batch-level cost definition
/What is a Batch-Level Cost?
A batch-level cost is a cost related to a group of units, but which is not associated with specific individual units. For example, the cost incurred to set up a production run is associated with the batch of goods that are subsequently produced. The concept is used to allocate overhead, where batch-level costs are spread among the units in a batch.
Examples of Batch-Level Costs
There are several types of costs that are generally classified as batch-level costs. They are as follows:
Material handling costs. There can be substantial costs associated with the movement of raw materials, work-in-progress, and finished goods within a production facility. These costs are incurred to shift the physical units in a batch from one location within the facility to another.
Labor costs. There may be a number of activities associated with a batch, such as initially setting up production equipment, testing output, and conducting quality inspections.
Equipment setup costs. There are nearly always some setup costs incurred whenever production equipment must be configured for a production run. This includes equipment calibration, as well as the loss of materials during test runs.
Inspection costs. There may be costs associated with quality checks, or for testing performed on a batch of products to ensure that they meet standards.
Related AccountingTools Courses
FAQs
How Do Batch-Level Costs Differ From Unit-Level Costs?
Batch-level costs differ from unit-level costs because they are incurred once for an entire batch of products, while unit-level costs are tied to each individual item produced. For example, machine setup or quality inspection is a batch-level cost, whereas direct materials and direct labor are unit-level costs. This distinction is important because batch-level costs do not change with the number of units in a batch, but unit-level costs increase as more items are produced.