Happi Ltd. Produces product RP in batches, management of the Happi Ltd. wants to know the number of batches of product RP to be produced where the…

Economic batch quantity in Batch Costing: In batch costing the most important problem is the determination of ‘Economic Batch Quantity'. The determination of economic batch quantity involves two types of costs viz, (i) set up cost and (ii) carrying cost. With the increase in the batch size, there is an increase in the carrying cost but the set up cost per unit of product is reduced. This situation is reversed when the batch size is reduced. Thus there is one particular batch size for which both set up and carrying costs are minimum. This size of a batch is known as economic or optimum batch quantity. Economic batch quantity can be determined with the help of table, graph or mathematical formula. The mathematical formula usually used for its determination is as follows: E.B.Q = √(2DS / C) Where, D = Annual demand for the product S = Setting up cost per batch C = Carrying cost per unit of production per annum