What is a Batch-Level Allocation?

Costing refers to the estimation of costs or expenses related to the production of a commodity or the delivery of a service. This might include direct costs and indirect costs. Batch-level costs refer to the costs of producing or manufacturing a set of goods in which the costs cannot be allocated to individual items. Rather, the costs can be allocated to the totality of units produced or set of products manufactured. Batch-level allocation is a costing method in which costs of producing a batch or set of products cannot be allocated to an individual unit or products, rather the costs must be allocated to the batch or set of goods.

How does a Batch Level Allocation Work?

Batch-level allocation estimates the costs or expenses of producing a set of products based on the fact that the products were produced using batch-level activities. Since the sets of commodities were produced as a cluster of units, their costing cannot be done as individual units. Costs must be allocated to the products as a set or batch. The Batch-level allocation assigns the overhead costs of producing services or commodities to the group of units produced and not an individual unit. This allocation method is aimed at accurately estimating costs to a batch of products in order to assign proper prices and enhance their profitability.

Example of Batch Level Allocation

The example below will aid a better understanding of Batch-level allocation. If a company manufactures products in batches or as a set, it is to reduce cost and time needed for the production of individual units. The time and money that will be used to produce one unit might produce 10 units if they are produced as a batch. Also, expenses associated with procurement of materials, transportation and storage of materials will be minimized when goods are produced as a set. Therefore, the cost of producing these items cannot be allocated to individual units, rather, to the totality of goods produced as a batch.