Economic Batch Quantity

In batch costing the most important problem is the
determination of optimum size of the batch (how much to produce) or Economic Batch
Quantity.
The determination of economic batch quantity involve two types of costs viz., (i) set up
cost (or preparation 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 is known as
economic or optimum batch quantity.