Answer:
See the explanation for the answers
Explanation:
A.
Cost of buying = annual requirement*price of the supplier
= 300*50
= $15,000
Cost of making = fixed investment+(annual requirement*cost of production per unit)
= 25,000+(300*40)
= 37,000
As the cost of buying is less than cost of making, Merrimac should buy.
B.
Total cost of buying from new supplier = $50*100 parts+$45*(300-100) parts
= 5000+9000
= $14,000.
This is lower than the two costs calculated in A above. Hence Merrimac should buy from the new supplier.
C.
(i) If demand = 2,000,
then cost of buying from old supplier = 2,000*50
= $100,000
Cost of making = 25,000+(2000*40)
=$105,000
Cost of buying from new supplier = 50*100+(2000-100)*45
= $90,500.
Hence the parts should be purchased from the new supplier.
(ii) demand = 5000 parts.
Cost of buying from old supplier = 5,000*50
=250,000
Cost of making = 25,000+(5000*40)
= 225,000
Cost of buying from new supplier = 50*100+(5000-100)*45
= 225,500
The cost of making is the least and hence the parts should be made by Merrimac.
D.
Comparing the cost of old supplier and new supplier:
Let the quantity be "x" where both costs are equal.
Thus 50x = 50*100+45*(x-100)
50 x = 5000+45x - 4500
5x = 500
x = 100.
Comparing new supplier vs to make:
Let the demand quantity be "x" where both costs are equal.
Thus 50*100+45*(x-100) = 25,000+40x
5000+45x - 4500 = 25000+40x
5x = 24500
x = 4900
Thus if x (or demand)<=100 then the parts should be purchased from the old supplier.
if x>100 but <4900 then the parts should be purchased from the new supplier.
if x>=4900 then the parts should be made by Merrimac.
