material, labour
set-up costs, carrying
transportation, carrying
warehousing, labour
Answer is Right!
Answer is Wrong!
The correct answer is: B. set-up costs, carrying costs.
Economic batch quantity (EBQ) is the optimal production quantity that minimizes the total cost of production. It is calculated by considering the following costs:
- Set-up costs: These are the costs incurred each time a production run is started, such as the cost of labor to set up the machines and the cost of materials that are wasted during the setup process.
- Carrying costs: These are the costs of storing the finished goods, such as the cost of warehouse space and the cost of insurance.
The EBQ is calculated by solving the following equation:
$EBQ = \sqrt{\frac{2 \times D \times C_s}{C_c}}$
where:
- $EBQ$ is the economic batch quantity
- $D$ is the annual demand for the product
- $C_s$ is the setup cost per production run
- $C_c$ is the carrying cost per unit per year
The EBQ is the quantity that minimizes the total cost of production. When the production quantity is less than the EBQ, the total cost is higher because the set-up costs are incurred more frequently. When the production quantity is greater than the EBQ, the total cost is higher because the carrying costs are higher.
The options A, C, and D are incorrect because they do not include both set-up costs and carrying costs.