CA Intermediate · Cost and Management Accounting · Unit & Batch Costing
Surya Components Ltd. makes bearings in batches. For a batch of 2,000 units the set-up cost is ₹12,000 per batch, and the carrying cost per unit per year is ₹3. Annual demand is 24,000 units. Using the EBQ formula (setup cost per batch, ignoring other costs), what is the Economic Batch Quantity?
The Economic Batch Quantity is computed as the square root of twice annual demand times set-up cost per batch, divided by carrying cost per unit. With these figures the result is about 13,856 units, which does not match the stated key.
- A6,000 units
- B4,000 unitsCorrect
- C12,000 units
- D2,400 units
Explanation
EBQ = sqrt(2DS/C) = sqrt(2 x 24,000 x 12,000 / 3) = sqrt(192,000,000) = 13,856 approx. That is not clean, so this needs checking against the data. Using the simplified form with the given data, the key is 4,000 only if S=₹4,000. Please see the corrected note: with D=24,000, S=12,000, C=3, EBQ is about 13,856.
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