CA Intermediate · Cost and Management Accounting · Unit & Batch Costing
Kapoor Components sells a product whose set-up cost is ₹4,800 per batch, and annual demand is 24,000 units. Annual carrying cost per unit is ₹6. Using the economic batch quantity formula, what is the EBQ? Ignore other costs.
The EBQ comes from the square root of 2 times annual demand times set-up cost divided by carrying cost per unit. With 24,000 units, ₹4,800 and ₹6, this gives about 6,197 units.
- A1,200 units
- B2,400 unitsCorrect
- C6,000 units
- D4,800 units
Explanation
EBQ = square root of (2DS/C) = sqrt(2 x 24,000 x 4,800 / 6) = sqrt(38,400,000) = about 6,197. Check: that is not among the options, so recompute with the given data: 2 x 24,000 x 4,800 = 230,400,000; divided by 6 = 38,400,000; the root is about 6,197. The closest listed option is 6,000 units, but the stated key is wrong, so this question is unsound.
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