Economic batch quantity
Economic batch quantity is the production-run size that minimises combined setup and holding costs when a batch is produced gradually rather than delivered all at once.
FrameworkEOQ model
See it move
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Economic batch quantity adapts EOQ for internal production. With annual demand of 24,000 units, a €150 setup cost per run, €2 holding cost per unit and a production rate of 40,000 units a year, EBQ = √[(2 × 24,000 × 150) ÷ (2 × (1 − 24,000 ÷ 40,000))] = √9,000,000 = 3,000 units, giving 24,000 ÷ 3,000 = 8 production runs a year.
Where it fits
SubjectCost AccountingAdvancedTopicJob & Process CostingAdvancedTopicRelevant Costs & Decision-MakingAdvanced
The formula
LaTeX
Variables
- Economic batch quantity (units)
- Annual demand (units/year)
- Setup cost per production run (€)
- Holding cost per unit per year (€)
- Annual production rate while a run is underway (units/year)
The batch size that minimises combined setup and holding costs when units become available gradually during a production run rather than arriving all at once.