CMA Intermediate · Cost Accounting · Batch Costing
Under batch costing, the Economic Batch Quantity (EBQ) is the batch size that minimises the sum of:
EBQ is the batch size that minimises the combined set-up cost and carrying cost. Bigger batches spread set-up costs over more units but increase holding costs, so the economic quantity strikes the balance between the two.
- ADirect material cost and direct labour cost
- BSet-up cost and carrying cost per batch cycleCorrect
- CSelling cost and distribution cost
- DNormal loss and abnormal loss
Explanation
Larger batches reduce total set-up cost per unit but raise inventory carrying cost. The EBQ balances the two, similar to EOQ in material control. Material and labour costs per unit do not change with the batch size in this model.
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