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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 total of which two costs is minimised?

The Economic Batch Quantity minimises the sum of set-up cost per batch and the carrying cost of holding the output. Larger batches reduce total set-up cost but increase stock holding cost, so the EBQ is the size where the combined cost is lowest.

  1. ASet-up cost per batch and carrying cost of holding the batch outputCorrect
  2. BDirect material cost and direct labour cost
  3. CSelling cost and distribution cost
  4. DFixed overheads and variable overheads

Explanation

EBQ balances the set-up cost per batch, which falls as batch size rises, against the carrying cost of stock, which rises with batch size. The total of the two is lowest at the EBQ. Material and labour costs vary with units and do not determine the batch size.

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