Apply unit, job and batch costing
Accumulate direct and indirect production or service costs in a way that matches how work is delivered, then calculate a unit cost.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These original lessons cover Topic 2.2.1–2.2.4: unit, job and batch costing; absorption costing and overheads; marginal costing, contribution and break-even analysis; and cost–volume–profit decisions. Practice is self-checked, not an official Cambridge grade; full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Know the difference between direct and indirect costs and between fixed and variable cost behaviour. Keep units, production volume, overhead rates and relevant ranges visible in calculations.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What does a cost centre collect before costs are assigned to products or services?
What you will learn
- Distinguish a cost centre from a cost unit
- Prepare unit, job and batch cost statements from supplied data
- Choose a costing unit that suits a manufacturing or service business
Choose the unit that matches the work
A cost unit is the product, service, job or batch for which a cost is measured, such as one repair, one consultation or a batch of 40 tables. A cost centre is a department, location, function or person where costs are collected before they are assigned to cost units.
Unit costing averages costs across comparable units; job costing collects costs for a distinct customer order or project; batch costing collects costs for a group of identical units, then divides by the number of good units in the batch. Select the method that reflects the work rather than forcing unlike services into one average.
Build the cost statement from traced and shared costs
Direct materials, direct labour and other direct expenses are traced to the relevant job or batch when the records support that treatment. Add indirect production or service overhead using the costing basis given or developed in the question. State which costs are included and the output quantity used for a unit cost.
A service can have a cost unit such as an appointment, delivery or billable hour. It may have no material inventory or production line. Cost information supports pricing and decisions, but a calculated average is not automatically the price customers will accept or the incremental cost of one extra job.
Pause and explain
A factory makes 500 identical lamps in one production run and wants the cost per lamp for that run. Which approach fits?
Worked example
Job J12 uses direct materials $3,800, 120 direct labour hours at $18 per hour and overhead absorbed at $12 per labour hour. The completed batch contains 40 identical units. Calculate the job cost and cost per unit.
Show the worked solution
- Direct labour = 120 × $18 = $2,160; absorbed overhead = 120 × $12 = $1,440.
- Job cost = $3,800 + $2,160 + $1,440 = $7,400.
- Cost per unit = $7,400 ÷ 40 = $185, assuming all 40 units are completed and the stated costs belong to this job.
Answer Job cost $7,400; cost per unit $185.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A print shop completes a one-off order for 2,000 brochures. Direct paper is $260, design labour is 5 hours at $24, press labour is 8 hours at $20, and overhead is absorbed at $15 per press hour. Find the job cost and cost per 1,000 brochures.
Give me a hint
Trace order costs first; use press hours for the supplied overhead rate.
Compare my reasoning
- Design labour = 5 × 24 = $120; press labour = 8 × 20 = $160.
- Overhead = 8 × 15 = $120. Total job cost = 260 + 120 + 160 + 120 = $660.
- Cost per 1,000 brochures = 660 ÷ 2 = $330.
Job cost $660; $330 per 1,000 brochures.
Look for these in your work
- Both labour types included
- Overhead basis used
- Output unit stated
A clinic records total monthly appointment-team cost of $18,000 for 600 comparable appointments. Calculate the average cost per appointment and give two reasons it may not equal the incremental cost of one extra appointment.
Give me a hint
Divide by the stated service units, then identify costs that do not change one-for-one with appointments.
Compare my reasoning
- Average cost per appointment = 18,000 ÷ 600 = $30.
- Rent and salaried staff may be fixed within available capacity, so one more appointment may not add $30 of cost.
- An extra appointment may require variable consumables or overtime, and the average combines both fixed and variable costs.
Average cost is $30 per appointment. Incremental cost may differ because the average includes fixed capacity costs and the extra appointment may use only some variable resources or trigger overtime.
Look for these in your work
- Average calculated
- Fixed capacity cost considered
- Incremental cost distinguished
A furniture maker sells individual chairs and also accepts bespoke kitchen installations. Recommend a costing method and cost unit for each activity, and explain one limitation of comparing their average costs.
Give me a hint
Match each costing method to whether output is standardised or customer-specific.
Compare my reasoning
- A chair can be costed per unit or through a batch of comparable chairs.
- A bespoke kitchen is a customer-specific job; collect materials, labour and relevant overhead to that installation.
- The installation and chair have different scope and service requirements, so their averages do not alone show relative profitability or customer value.
Use unit or batch costing for comparable chairs and job costing for each bespoke installation. Compare margins only after using a consistent basis and considering the different service scope, capacity and customer requirements.
Look for these in your work
- Standard output matched
- Bespoke job matched
- Comparison limitation explained
Common mistakes
- Treating the cost centre as the product being costed
- Dividing a job cost by units that were not completed or are not comparable
- Calling an absorbed average overhead the incremental cost of one extra unit
What can you explain now?
A repair workshop wants to know the cost of each customer repair order. What is the likely cost unit?
Compare with the explanation
Each repair job or customer order
The job is distinct, so its traceable time and materials can be accumulated separately.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Give one example of a cost unit for a service business and explain how it differs from a cost centre.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.