MERRIMAC manufacturing Company has always purchased a certain component part from asupplier on the East Coast for $50 per part. The supplier is reliable and has maintained thesame price structure for years. Recently, improvements in operations and reduced productdemand 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 annualfixed 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 fornew customers of $50 per part for the first 100 parts ordered and $45 per part for eachadditional unit ordered. Should Merrimac make the component in-house, buy it from thenew supplier, or stick with the old supplier?c. Would your decision change if Merrimac?s annual demand 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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