This paper presents methods to determine optimal transfer batch sizes of va
rious part types between two machines to minimize the sum of the total rele
vant costs. Information required includes the expected production requireme
nts, the operations' processing times, travel times, inventory carrying cos
ts, and other information. The total relevant cost components include mater
ial handling, pallet, holding, and machine costs. The structure developed i
s relevant to an activity-based costing system. Scheduling is optimized to
attain a good machine utilization. Mathematical programs are developed to m
inimize total costs subject to the appropriate constraints. Finally, compar
isons to other possible and typical methods of transfer batch sizing are do
ne to show the relevance of the proposed methods.