Explain the team economics manufacturing batch size.

The economic order quantity (EOQ) concept can be extended to the determination of of optimum manufacturing batch size for semi finished and finished goods. The Trade off cost in this case as follows - if the batch size is large, the average level of inventory of the product is also large and therefore the inventory carrying charges are high. But in such case, a few of such large batches, would suffice for the annual requirements. The number set up would be small and the corresponding set up would be low on the other hand, when the batch size is smaller, the no of set ups required in a years to manufacture the small total quality is higher, the order cost and the set up cost is higher,but at the same time, the average inventory level is smaller. Thus, making the carrying to cost lower. 

Cost of set up : 

The set up cost will consist of the following elements.

(1) Cost of the timing spent in setting up the equipment and organising the labour for a manufacturing batch. This is the cost of the ideal time of the labour and the machinery which would have otherwise produce goods. This is the opportunity cost of the time lost due to a set up.

(2) Cost due to rejects, scrap rework generated during a set up.

(3) Variable cost of administrative paper work for a set up.