Economic Production Run (EPR)

Economic Production Run (EPR)

See Also:
Economic Value Added
Economic Order Quantity
Accounting Income vs Economic Income
Supply Chain and Logistics
Work in Progress

Economic Production Run (EPR) Definition

Economic production run is the most cost-efficient quantity of units to produce at a time. When managers of a manufacturing operation make decisions about the number of units to produce for each production run, they must consider the costs related to setting up the production process and the costs of holding inventory. Given set up costs, carrying costs, and the requirement for units produced per year, EPR calculates the optimal quantity of units to produce for each production run.

There is an equation for computing the exact EPR. The equation requires three input variables. The first is an estimate of the number of units that need to be produced per year. This is the number of units the company needs to produce to meet estimated consumer demand. Then the second variable is the estimated cost of setting up a production run. Finally, the third variable is the estimated cost of holding one unit of inventory for a year. These inventory holding costs include costs such as storage, handling, and insurance.

Economic Production Run Equation

Economic production run equals the square root of two times the annual requirement times the cost of setting up each production run. Then divide that by the annual holding cost per unit. Use the following economic production run equation:
EPR = √ ((2 x R x C) / H)
EPR = Economic production run quantity
R = Annual requirement of units produced
C = Setup cost per production run
H = Annual holding cost per unit of inventory
If you want to check if your unit economics are sound, then download your free guide here.
economic production run
[box]Strategic CFO Lab Member Extra
Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
economic production run

Barfield, Jesse T., Michael R. Kinney, Cecily A. Raiborn. “Cost Accounting Traditions and Innovations,” West Publishing Company, St. Paul, MN, 1994.


Is Mexico the New China?

In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.

Read More »

Changing Markets Affect on Valuations

Economics back in January 2021 Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive.  Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101

Read More »

Product Life Cycle Stages

See also: Product Life Cycle Company Life Cycle Why You Need a New Pricing Strategy Increasing Pricing on Products What is the Product Life Cycle? A product life cycle includes stages the product experiences throughout its lifetime – from conception of the idea to the decline and abandonment of the product. Some products experience longer

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022


Financial Leadership Workshop


August 7-10th, 2023

WIKI CFO® - Browse hundreds of articles
Skip to content