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MAMA Co, a large manufacturer of toys and dolls, uses large quantities of flesh-colored cloth in its doll production process. Throughout the year, the firm uses 1,250,000 square yards  of  this  cloth.  The  fixed  costs  of  placing  and  receiving  an  order  are  P2,000,  which includes a P1,500 setup charge at the mill. The price of the cloth is P2.50 per square yard, and  the  annual  cost  of  carrying  this  inventory  item  is  25%  of  the  price.  Laruan  Co. maintains  a  12,500  square  yard  safety  stock.  The  cloth  supplier  requires a  2-week  lead time from order to delivery.Required:

a.What is the EOQ for this cloth?

b.What  is  the  total  cost  of  inventory  including  the  safety  stock  (assume  that  the safety stock is on hand at the beginning of the year)

c.Using a 52-week year, at what inventory unit level should an order be placed?

Eoq   Working-Capital-Management   Asset   
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