Skip to content

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

Under batch costing, the economic batch quantity (EBQ) is the batch size at which which of the following is minimised?

EBQ is the batch size that minimises the sum of set-up cost and carrying cost per unit. Larger batches reduce set-up cost per unit but raise inventory carrying cost, so the optimum balances the two.

  1. ASum of set-up cost and carrying cost per unitCorrect
  2. BDirect material cost only
  3. CSelling price per unit
  4. DTotal fixed overheads of the factory

Explanation

EBQ balances set-up costs (which fall per unit as batch size rises) against carrying costs (which rise with batch size). The batch size minimising their combined cost is the EBQ. The other options are not affected by this trade-off.

Did you get it right without looking?

One question tells you little. A timed set on Unit & Batch Costing shows your real accuracy, how long you take and where you lose marks.

Practise Unit & Batch CostingFree diagnostic mock

More Unit & Batch Costing questions