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Economic batch quantity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Economic batch quantity

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by AvatarJohn Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • March 26, 2015 at 8:59 pm #239024
    AvatarAlexa
    Member
    • Topics: 8
    • Replies: 1
    • ☆

    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!

    March 27, 2015 at 8:24 am #239066
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54845
    • ☆☆☆☆☆

    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

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