Merrimac Manufacturing Company has always purchased acertain component part from a supplier on the East Coast for$50 per part. The supplier is reliable and has maintained the same price structure for years. Recently, improvements in op-erations and reduced product demand have cleared up some capacity in Merrimac’s own plant for producing componentparts. The particular part in question could be produced at$40 per part, with an annual fixed investment of $25,000.Currently, Merrimac needs 300 of these parts per year.a. Should Merrimac make or buy the component part?b. As another alternative, a new supplier located nearby isoffering volume discounts for new customers of $50per part for the first 100 parts ordered and $45 per partfor each additional unit ordered. Should Merrimacmake the component in-house, buy it from the newsupplier, or stick with the old supplier? c. Would your decision change if Merrimac’s annual de-mand increased to 2000 parts? increased to 5000 parts? d. Develop a set of rules that Merrimac can use to decidewhen to make this component, when to buy it from theold supplier, or when to buy it from the new supplier.
Merrimac Manufacturing Company has always purchased a
certain component part from a supplier on the East Coast for
$50 per part. The supplier is reliable and has maintained the
same price structure for years. Recently, improvements in op-
erations and reduced product demand have cleared up some
capacity in Merrimac’s own plant for producing component
parts. The particular part in question could be produced at
$40 per part, with an annual fixed investment of $25,000.
Currently, Merrimac needs 300 of these parts per year.
a. Should Merrimac make or buy the component part?
b. As another alternative, a new supplier located nearby is
offering volume discounts for new customers of $50
per part for the first 100 parts ordered and $45 per part
for each additional unit ordered. Should Merrimac
make the component in-house, buy it from the new
supplier, or stick with the old supplier?
c. Would your decision change if Merrimac’s annual de-
mand increased to 2000 parts? increased to 5000 parts?
d. Develop a set of rules that Merrimac can use to decide
when to make this component, when to buy it from the
old supplier, or when to buy it from the new supplier.
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