CA Intermediate · Cost and Management Accounting · Unit & Batch Costing
A firm manufactures a product with annual demand of 18,000 units, set-up cost per batch Rs 800 and carrying cost Rs 4 per unit per year. Using the EBQ formula, how many batches will be run in a year?
EBQ is the square root of 2DS/C, about 2,683 units. Dividing annual demand by this gives roughly 6.7 batches per year, so no listed option exactly matches.
- A9Correct
- B10
- C12
- D8
Explanation
EBQ = sqrt(2 x 18,000 x 800 / 4) = sqrt(7,200,000) = about 2,683 units. Batches = 18,000 / 2,683 = about 6.7, which does not match any option exactly.
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