Question

What is lot costing?

Hint:

Lot costing = total cost per batch divided by units made.

Answer 1

Lot costing is a type of batch costing used when goods are produced in definite lots or batches.
A lot refers to a specific quantity of identical units produced together at one time.
In lot costing, the total cost of producing a lot is calculated by adding up all direct and indirect costs like materials, labour, and overheads.
Then, the cost per unit is found by dividing the total cost by the number of units in the lot.
This method is commonly used in industries like garments, toys, or spare parts where production is done in lots based on customer orders or stock requirements.
Lot costing helps businesses control production costs and set competitive prices.