produced when production rate exceeds usage rate or when the items produced are not immediately consumed in the next stage of production. The set up cost per unit decreases with increase in lot size whereas the inventory carrying cost increases with increase in lot size. Diagram below illustrates the concept of economic batch quantity or economic lot size or Economic Order Quantity. Economic Lot Size Concept Cost per unit Total Cost 1 Inventory carrying Cost V6 Set up Cost Quantity EBQ or ELS or EOQ EBQ-Economic Batch Quality ELS Economic Lot Size If S is the set up cost per set up also known as Ordering Cost, 'C' is the production cost per unit produced and lis the inventory carrying or holding changes (%) and A is the annual demand for the item in units, then. Economic Batch Quantity (EBQ) or Economic Order Quantity (EOQ) or Economic Lot Size (ELS) or Economic Manufacturing Quantity (EMQ) 2AS 2xAnnual demand x Set up Cost) fin units) 1* per set up Production Cost Inventory carrying per unit *Icharges (percentage) Economic Run Length: When a firm is producing an item and keeping it in inventory for later use, instead of buying it, the formula used to calculate economic order quantity (EOQ) can be used to calculate the economic production quantity referred to as Economic Run Length (ERL). of 'p' is the production rate and 'd' is the demand rate (or consumption rate). A is the annual demand for the item in units. I is the inventory carrying charges (percentage). C is the production cost per unit, then Economic Run Length (ERL) = 2AS Vio 2*{Annual Demand inunits)