Ross Whites machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or 10% of the unit cost), and the ordering cost per order is $18.75. There are 250 working days per year.

Ross White (see Problem 1) wants to reconsider his decision of buying the brackets and is considering making the brackets in-house. He has determined that setup cost would be $25 in machinist time and lost production time and that 50 brackets could be produced in a day once the machine has been set up.

Ross estimates that the cost (including labor time and materials) of producing one bracket would be $14.80. The holding cost would be 10% of this cost.

Upon hearing that Ross White (see Problems 1 & 2) is considering producing the brackets in house, the vendor has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross would purchase the brackets in lots of 1,000. Lead times, however, would increase to 3 days for this larger quantity.

(a) What is the total annual inventory cost plus purchase cost if Ross buys the brackets in lots of

1,000 at $14.50 each?

(b) If Ross does buy in lots of 1,000 brackets, what is the new ROP?

(c) Given the options of purchasing the brackets at $15 each, producing them in-house at $14.80, and taking advantage of the discount, what is your recommendation to Ross White?