Star Toys Company produces dolls using flesh colored cloth in its doll production process. Annual requirements of flesh colored cloth are 2,500,000 square yards for smooth production and sales of…

a. Economic Order Quantity (EOQ)

The EOQ formula is: $$EOQ=\sqrt{\frac{2DS}{H}}$$ where:

• $D=2,500,000$ sq. yds (annual demand),
• $S=4,000$ Rs (ordering cost),
• $H=20\%\times 1,000=200$ Rs (holding cost per unit per year).

Calculation: $$EOQ=\sqrt{\frac{2\times 2,500,000\times 4,000}{200}}=\sqrt{100,000,000}=\text{500,000 sq. yds}$$

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b. Total Cost of Inventory

The total cost (TC) is the sum of ordering cost and holding cost: $$TC=\left(\frac{D}{Q}\right)S+\left(\frac{Q}{2}\right)H$$ where $Q=500,000$ sq. yds (EOQ).

Ordering Cost: $$\frac{2,500,000}{500,000}\times 4,000=10\times 4,000=\text{10,000 Rs}$$

Holding Cost: $$\frac{500,000}{2}\times 200=250,000\times 0.2=\text{12,500 Rs}$$

Total Cost: $$10,000+12,500=\text{22,500 Rs}$$

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c. Re-order Point (ROP)

The ROP formula is: $$ROP=(AverageDailyUsage\times LeadTime)+SafetyStock$$ where:

• Annual demand = 2,500,000 sq. yds,
• Lead time = 2 weeks = 10 working days (assuming 50 weeks/year),
• Safety stock = 15,000 sq. yds.

Average Daily Usage: $$\frac{2,500,000}{50}=50,000\text{ sq. yds/day}$$

ROP Calculation: $$ROP=(50,000\times 10)+15,000=500,000+15,000=\text{515,000 sq. yds}$$