Manufacturers who utilize a batch costing system need to determine the batch size which will minimize the total cost of production. The economic batch quantity formula can be used to calculate this value.
Batch costing can be used by both manufacturing and service industries. The purpose of the batch cost system is to allow a business to calculate the total cost of a batch of identical units in order that a unit cost, selling price and profitability can be determined.
The sales volume variance has two components, the sales mix variance and the sales quantity variance. The sales mix variance shows the effect of the difference between the actual and budgeted sales mix. The sales quantity variance shows the effect of the difference between the actual volume sold at the budgeted mix and the budgeted volume.
The total sales variance sometimes referred to as the sales value variance is the difference between the actual sales and budgeted sales and can be split and analysed into the sales volume variance and the sales price variance.
Make or buy, sell or process further, keep or drop, accept or reject a special order, and repair or replace are all examples of decisions which can made using the incremental analysis approach. The technique considers only relevant costs when a business needs to make a choice between alternative options.
Immaterial waste products arising from a production process are known as byproducts or by-products. The products are usually accounted for in a non-GAAP manner using either the production method or the sales method. The production method recognizes the value of the byproduct when it is produced, and the sales method recognizes the value when the byproduct is sold.