(a) XUZ Company produces readymade garments for men. The purchasing officer collects the following information:-
Annual demand for Jeans 40,000 yards
Ordering cost per purchase order AED 120/-
Carrying cost per year 26% of purchase costs
Safety-stock requirements None
Cost of fabric AED 10 per yard
The purchasing lead time is 3 weeks. The fabric center is open 250 days a year (50 weeks for 5 days a week).
(i) Calculate the Economic Order Quantity (EOQ) for Jeans.
(ii) Calculate the number of orders that will be placed each year.
(iii) Calculate the reorder point for Jeans fabric.
(iv) What are the steps in computing the cost of a prediction error when using EOQ decision model?
(b) What do you understand by backflush costing? Describe three different versions of backflush costing.