What carrying cost rate should I use?

Use your finance team's yearly rate for capital, storage, insurance, handling and obsolescence. Parts made to one customer's print become scrap if the program ends, which argues for a higher rate.

Should I run the whole blanket order in one lot?

Only if the economic lot is near the blanket quantity. One big lot saves setups but ties up cash in parts the customer may never release or may revise.

Does cutting setup time change the best lot size?

Yes. The economic lot moves with the square root of setup cost. Cutting setup from 6.5 to 1.5 hours roughly halves both the economic lot and its yearly cost.

Is this the same as the EOQ formula?

Yes, with setup cost per lot as the order cost. If a long run ships while still being made, the economic production quantity gives a larger lot.

Contract Manufacturing, Job Shop Quoting & Make-to-Order calculator

Lot Size Economics Calculator

Find the economic lot size for a repeat job and what your quoted lot costs a year in setups and carried inventory. You need annual demand, setup hours, shop rate, part cost and carrying rate.

What this calculator does

Lot size per setup that minimizes yearly setup plus carrying cost, and what your quoted lot costs against it.

Formula used

Setup cost per lot = setup hours × shop rate; carrying cost per part-year = run and material cost per part × carrying cost rate
Economic lot size = √(2 × annual demand × setup cost per lot ÷ carrying cost per part-year)
Yearly cost at a lot size = annual demand ÷ lot size × setup cost per lot + lot size ÷ 2 × carrying cost per part-year
Yearly cost at the economic lot = √(2 × annual demand × setup cost per lot × carrying cost per part-year); extra cost = quoted minus economic

Inputs explained

Annual Demand: Parts per year from the blanket order or customer forecast.
Setup Hours: Setup and first-article hours each time the job runs.
Shop Rate: Burdened hourly rate for machine, operator and overhead.
Run and Material Cost per Part: Material, outside processing and run time at shop rate, setup excluded.
Carrying Cost Rate: Capital, storage, insurance and obsolescence cost per year, % of inventory value.
Quoted Lot Size: Parts made per setup in your quote or current schedule.

How to use the result

Best suited to setting release quantities on a blanket order, rechecking lot size after a forecast change.
Prices setup at shop rate; if setup idles a bottleneck machine, lost output makes it cost more. Ignores price breaks, material minimums, shelf life and the customer's release schedule.

Current U.S. benchmarks

The U.S. prime lending rate is 7.00% (Federal Reserve via FRED, 2026-10-02). Payback and financing math should start from today's rate, not a remembered one.

Common questions

What carrying cost rate should I use? Use your finance team's yearly rate for capital, storage, insurance, handling and obsolescence. Parts made to one customer's print become scrap if the program ends, which argues for a higher rate.
Should I run the whole blanket order in one lot? Only if the economic lot is near the blanket quantity. One big lot saves setups but ties up cash in parts the customer may never release or may revise.
Does cutting setup time change the best lot size? Yes. The economic lot moves with the square root of setup cost. Cutting setup from 6.5 to 1.5 hours roughly halves both the economic lot and its yearly cost.
Is this the same as the EOQ formula? Yes, with setup cost per lot as the order cost. If a long run ships while still being made, the economic production quantity gives a larger lot.

Related guides

Last reviewed 2026-10-01.