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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Economic batch quantity
Hey,
A company manufactues a component for one of its products. It used 6000 of these components evenly throughout the year. Each component costs $20 to manufacture. In addition there is a cost of $600 to set-up the machines each time a batch of these components is manufactured. The holding cost per unit is $2 per year. The company can produce the units at the rate of 5000 per month. What is the economic batch quantity that should be manufactured each time?
6000
2000
365
1897
The answer is 2000. Can you please explain? I do not understand how to count 600 in the EBQ?
Thank you!
It would help you to watch the free lecture where I work through an almost identical example from the free Lecture Notes.
It is simply using the formula on the formula sheet.
D = 6,000
Co = 600
Ch = 2
R = 12 x 5000 = 60,000