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CA Intermediate · Cost and Management Accounting · Unit & Batch Costing

In batch costing, the Economic Batch Quantity (EBQ) is the batch size at which the sum of which two costs is minimised?

EBQ is the batch size at which the combined set-up cost and inventory carrying cost is minimum. Larger batches spread set-up cost over more units but raise stock holding cost, so the best size balances the two opposing costs.

  1. ASet-up cost and carrying cost per batchCorrect
  2. BMaterial cost and labour cost
  3. CSelling cost and distribution cost
  4. DFixed cost and variable cost of production

Explanation

EBQ balances set-up cost, which falls per unit as batch size rises, against carrying cost of stock, which rises with batch size. The total of these two is lowest at EBQ. Other pairs listed are not the trade-off considered in the EBQ model.

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