Abstract: This paper deals with the optimal control policy of two-phase service MX/ Ek /1 queues with vacation, N-policy, server break downs and balking. Generating functions method is used to derive the system characteristics. The total expected cost function is developed to determine the optimal threshold of N at a minimum cost. Numerical experiment is performed to validate the analytical results. The sensitivity analysis has been carried out to examine the effect of different parameters in the system.