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    Economic Batch Quantity

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    Parbin Sultana
    Economic Batch Quantity (EBQ) is the optimal batch size that minimizes total costs for batch production. It accounts for setup costs of each batch as well as costs of holding inventory. The EBQ formula is similar to EOQ but adjusts for inventory produced and sold in the same day. EBQ is used to determine batch size for internal manufacturing when materials are acquired incrementally according to production needs.

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    Economic Batch Quantity

    Uploaded by

    Parbin Sultana
    257 views2 pages
    Economic Batch Quantity (EBQ) is the optimal batch size that minimizes total costs for batch production. It accounts for setup costs of each batch as well as costs of holding inventory. The EBQ formula is similar to EOQ but adjusts for inventory produced and sold in the same day. EBQ is used to determine batch size for internal manufacturing when materials are acquired incrementally according to production needs.

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    Economic Batch Quantity (EBQ) is the optimal batch size that minimizes total costs for batch production. It accounts for setup costs of each batch as well as costs of holding inventory. The EBQ formula is similar to EOQ but adjusts for inventory produced and sold in the same day. EBQ is used to determine batch size for internal manufacturing when materials are acquired incrementally according to production needs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    257 views2 pages

    Economic Batch Quantity

    Uploaded by

    Parbin Sultana
    Economic Batch Quantity (EBQ) is the optimal batch size that minimizes total costs for batch production. It accounts for setup costs of each batch as well as costs of holding inventory. The EBQ formula is similar to EOQ but adjusts for inventory produced and sold in the same day. EBQ is used to determine batch size for internal manufacturing when materials are acquired incrementally according to production needs.

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    Economic Batch Quantity (EBQ)

    Economic Batch Quantity (EBQ), also known as the optimum production quantity (EPQ), is the
    order size of a production batch that minimizes the total cost.

    Explanation

    Batch production is a technique which is commonly used today for distributing the total
    production in a series of small batches rather than mass producing in one go.

    Sometimes the production of goods in batches is necessary because, for example, certain
    equipment used in manufacturing (e.g. dyes) may wear out and need replacement before the
    production can run again.

    Batch production may be desirable in other cases as well. For example, where the objects being
    produced are perishable, the entire production requirement for say a year can’t be manufactured
    in a week as it might cause the goods to expire after some time. Batch production also reduces
    the risk of obsolescence as any minor changes required in the specification of goods (e.g. size,
    color, etc.) can be made in future batches according to the feedback received from customers or
    retailers instead of producing everything in one go and hoping for the best.

    Whereas EOQ is suitable for determining the order size when the parts, materials or finished
    goods are ready to be delivered by external suppliers when the order is placed, EBQ is used to
    determine the size of a production run (i.e. batch size) when the manufacturing takes
    place internally and any raw materials or parts required for production are either acquired
    internally or are supplied incrementally by other companies according to the production
    requirement.

    √
    FormulaEconomic Batch Quantity = (2 x C s x D) ¿
    ¿¿

    Where:

     Cs is the setup cost of a batch


     D is the annual demand
     P is the annual production capacity
     Ch is the annual cost of holding one unit of finished inventory
    The formula for calculating EBQ is very similar to EOQ with one notable difference in the
    denominator. The cost of holding in EBQ formula is decreased by the amount of inventory that
    will be produced and sold on the same day therefore not contributing to the annual cost of
    holding the inventory.

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