Question

H&M's chief demand planner has estimated that 9,250,000 units of clothing will be sold in 2021. H&M's cost of placing and processing an order is R250, while the annual cost of holding a unit in its distribution centre is projected at 5% of the unit purchase price. Both costs are expected to be constant for the foreseeable future.

On average H&M sells a unit of clothing for R300.00 at cost plus 50%. Orders are received two weeks after being placed with the supplier.

Assume a 365-day year and that demand is constant throughout the year.

Furthermore, as part of the drive towards operational efficiency, the chief demand planner is thinking about using the seasonally-adjusted moving average method to forecast demand for H&M's clothing for the 2021 financial year. In this regard, Mrs Masuku has retrieved from the retailer's database the following information on number of clothing sold over a four-year period.

Year Quarterly sales ('000 units)

Q1 Q2 Q3 Q4

2016 1300 1500 1200 2000

2017 1600 1800 100 2200

2018 1700 1900 1300 2300

2019 1800 2100 1400 2500

3.1 Study the information provided above and answer the following questions: Calculate the economic order quantity (EOQ). (3 marks)

3.2 Using a simple regression analysis, determine the trend equation of the sales and use it to estimate the number of units of clothing sold throughout the fiscal year 2020. Assume that Q1 of 2016 is 1, Q2 of 2016 is 2, etc. Show all relevant calculation details.