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CMA Intermediate · Cost Accounting · Batch Costing

In batch costing, the Economic Batch Quantity (EBQ) is the batch size at which the total of two costs is minimised. These two costs are:

Economic Batch Quantity is the batch size that minimises the combined set-up cost and inventory carrying cost. Larger batches reduce set-up cost per unit but raise carrying cost, so EBQ balances the two.

  1. ASet-up cost and carrying costCorrect
  2. BMaterial cost and labour cost
  3. CSpoilage cost and rework cost
  4. DSelling cost and distribution cost

Explanation

EBQ balances set-up cost per batch, which falls as batch size rises, against carrying cost of inventory, which rises with batch size. Total of these is minimised at EBQ.

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