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CMA Intermediate · Cost Accounting · Batch Costing

In batch costing, the Economic Batch Quantity (EBQ) is the batch size that:

EBQ is the batch size that minimises the total of annual set-up cost and annual carrying cost. Larger batches reduce set-up costs but raise carrying costs, so the economic batch is the balance point where the combined cost is lowest.

  1. AMaximises the number of batches produced in a year
  2. BMinimises the sum of set-up cost and carrying cost per yearCorrect
  3. CEquals the annual demand for the product
  4. DEqualises the selling price and the cost per unit

Explanation

EBQ balances set-up costs, which fall as batch size rises, against inventory carrying costs, which rise with batch size. The batch size at which the total of the two is lowest is the EBQ. Maximising batches would raise set-up cost, and EBQ has no link with selling price.

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