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what is economic batch quality and the formular for calculating it?

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May 20th 2014 AN ACCA USER 140 Points

3 Replies

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Economic Batch Quantity (EBQ) is a formula for calculating the quantity of inventory that a company should order in cases where the resupply is gradual e.g. when the company produces it's own inventory and takes a while to complete production. Think of a company assembling vehicles. When their inventory reaches the reorder level, they place an order for a resupply that will take a while considering that it takes time to assemble the vehicles. The resupply is not instantaneous. The new vehicles may be assembled in batches of say 5 a day. The EBQ formula will be used to find out the economical resupply quantity that the company should order. The EBQ takes into account the: Cost of the order (CO), Demand per unit time of the inventory (D) in our example the demand could be 2 cars a day, Cost of holding one unit of inventory (CH) and the rate of production per unit time (R) Note that R must always be greater than D. The EBQ is at a level that minimizes the CO and CH.

EBQ=√((2 CO D)/(CH(1-D/R)))

Hope that helps

May 24th 2014 AN ACCA USER 380 Points 2 Flags
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EBQ= √((2.D.Co)/(Ch (1-(D/R)))

It's 2 multiplied by B multiplied by Co.
This whole thing divided by Ch multiplied by (1-(D/R)

Root altogether.

Here's what each stands for.

Q=Batch size
D=Demand per annum
Ch-Cost of holding one unit for one year
R=Annual Requisition Rate

December 25th 2014 AN ACCA USER 1,160 Points
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EBQ = ____
/ 2CoD
CH (1-D/R)
Where D= usage per time period
R= production rate per time
Co= set up cost per batch
CH= holding cost per unit of inventory

January 28th 2015 AN ACCA USER 410 Points