Accounting · Batch Costing
'TechGadgets Ltd.' produces smartwatches in runs of 1,000 units to optimize machine setup costs. Each production run (batch) is assigned a unique number, and the cost of the entire run is tracked. A key challenge is the proper allocation of Setup Costs across the units. Which costing method should TechGadgets use, and how is the unit cost determined?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Batch Costing; Setup Costs are aggregated for the batch and then distributed equally among the 1,000 units to find the unit cost.✓
- 2Batch Costing; Setup Costs are treated as a part of prime cost for the batch.
- 3Process Costing; Setup Costs are averaged over the total monthly output across all processes.
- 4Job Costing; Setup Costs are treated as direct labor and charged per watch.
Correct answer
Batch Costing; Setup Costs are aggregated for the batch and then distributed equally among the 1,000 units to find the unit cost.
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