A simulation-based cost model is presented for determining the number of automated guided vehicles (AGVs) needed to meet the material handling requirements in a manufacturing system. The estimation of the number of vehicles is based on the sum of the idle-time costs of vehicles and machines, and the cost of waiting time of parts. While an increase in the number of vehicles reduces the waiting time of parts and the idle time of machines, it increases the idle time of vehicles. The application is illustrated using a hypothetical manufacturing system.