A juice company receives an annual order for 2,00,000 liters from a single customer. The order includes various flavors, each produced in a…
CA Intermediate · Cost and Management Accounting · MTP · September 2025
A juice company receives an annual order for 2,00,000 liters from a single customer. The order includes various flavors, each produced in a continuous run, with machinery reconfigured between flavors. Finished batches are stored and delivered in a single shipment before production of the next flavor begins. The setup cost is 600for each setup, and the required services are provided by an external company as needed. Holding costs for rented storage are 600 per square meter annually, with each square meter holding 500 liters of juice. You are required to CALCULATE the batch size which will minimise the total cost.
Suggested Answer and Working Notes:
Economic Batch Quantity (EBQ): EBQ = 2 DS √C Where, D = Annual demand for the product = 2,00,000 liters S = Setting up cost per batch = 600 per set-up C = Carrying cost per unit of production = 600 500 liters = 1.20 per liter per annum Therefore, EBQ = 2 x2,00,000x600 √1.20 = 14,142 Liters
Topics: Unit & Batch Costing
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