## Economic Batch Quantity (EBQ)

The lot/batch size is critical to achieving the least cost of operation. Total batch production cost has two opposing components:

1. Machine Set-Up Costs — incurred each time a batch is started.

2. Inventory Holding (Carrying) Costs — incurred for holding produced units.

### The trade-off

Larger batch → fewer set-ups → lower set-up cost, but more units in inventory → higher holding cost.
Smaller batch → lower holding cost, but more set-ups → higher set-up cost.

EBQ is the batch size where the total of set-up + holding costs is minimum.

### Formula

$$EBQ = \sqrt{\dfrac{2DS}{C}}$$

Where:

(Note the structural similarity to EOQ — EBQ swaps ordering cost for set-up cost.)

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## Difference Between Job Costing and Batch Costing

#	Job Costing	Batch Costing
1	Used for non-standard, non-repetitive products made to customer specifications against specific orders.	Used for homogeneous products produced in a continuous flow in lots.
2	Cost determined for each job.	Cost determined in aggregate for the whole batch, then reduced to a per-unit basis.
3	Jobs are different, independent, and unique.	Products in a batch are homogeneous and lack individuality.

⚠️ Common exam mistakes

Using ordering cost instead of set-up cost (S) in the EBQ formula.
Forgetting to take the square root, or mis-placing carrying cost C (it goes in the denominator).
Confusing annual demand with batch demand for D.
Using job costing logic (cost per job) for batch problems instead of aggregating then dividing per unit.

Reference:

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Economic Batch Quantity (EBQ) & Job vs Batch Costing

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