The EOQ formula also can be used to compute the optimum Size ofa production run, in
which case CO represents an estimate of the setup cost, and CU represents the vaHable
manufacturing cost per unit. To illustrate, assume that stock item A88 is manufactured
rather than purchased the setup cost (CO), such as the cost of labor to rearrange
and adjust machines, is $62; variable manufacturing cost (CU) is $2 per unit; annual
requirem are 6,000 units; and the cartying cost is 20 percent. The optimum size of a
production run is computed as follows: