21-23. EOQ FOR A RETAILER. The Cloth Bonanza sells fabrics to a wide range of industrial and consumer users. One of the products it carries is denim cloth, used in the manufacture of jeans and carrying bags. The supplier for the denim cloth pays all incoming freight. No incoming inspection of the denim is necessary because the supplier has a track record of delivering high-quality merchandise. The purchasing officer of the Cloth Bonanza has collected the following information:

1. The purchasing lead time is 2 weeks. The Cloth Bonanza is open 250 days a year (50 weeks for 5 days a week).
   1. Required
   2. 1. Calculate the EOQ for denim cloth.
   3. 2. Calculate the number of orders that will be placed each year.
   4. 3. Calculate the reorder point for denim cloth.
2. 21-24. EOQ FOR A MANUFACTURER. Sk8 Company produces skateboards and purchases 20,000 units of a wheel bearing each year at a cost of $1 per unit. Sk8 requires a 15% annual rate of return on investment. In addition, the relevant carrying cost (for insurance, materials handling, breakage, etc.) is $0.17 per unit per year. The relevant ordering cost per purchase order is $38.40.
   1. Required
   2. 1. Calculate Sk8s EOQ for the wheel bearing.
   3. 2. Calculate Sk8s annual relevant ordering costs for the EOQ calculated in requirement 1.
   4. 3. Calculate Sk8s annual relevant carrying costs for the EOQ calculated in requirement 1.
   5. 4. Assume that demand is uniform throughout the year and known with certainty so there is no need for safety stocks. The purchase-order lead time is half a month. Calculate Sk8s reorder point for the wheel bearing.

Ensure you calculate variable spending variance and efficiency variance for problem 8-23 and give the reasons for those variances. For 8-24, calculate fixed spending variance and production volume variance. Explain the reasons for those variances.

AnnualdemandfordenimclothOrderingcostperpurchaseorderCarryingcostperyearSafety-stockrequirementsCostofdenimcloth29,250yards$19520%ofpurchasecostsNone$15peryard