Your current problem is a $$make vs$.$ buy$$ decision with two potential suppliers in addition to the option of producing the component ourselves. The total annual cost under each alternative is as follows:

Make: Annual fixed costs of $$1,000,000,$ plus a per$-$unit production cost of $$16\mathrm{.}00$ per unit

Buy $($Supplier A$)$: Annual fixed costs of $$50,000,$ plus a per$-$unit purchase price of $$35\mathrm{.}00/$unit

Buy $($Supplier B$)$: Annual fixed costs of $$50,000,$ plus purchase price of $$30\mathrm{.}00/$unit$.$ However, in order to get this price, we need to commit to ordering a minimum of $40,000$ units. $($We will buy $40,000$ units even if we need less than $40,000.$ We can sell the excess as described below.$)$

We currently estimate the following probability distribution for total annual demand $($D$).$

d: $10,00020,00030,00040,00050,00060,00070,00080,00090,000100,000$

P$($D $=$ d$)$:

$0\mathrm{.}1800\mathrm{.}2000\mathrm{.}1900\mathrm{.}1500\mathrm{.}1000\mathrm{.}0700\mathrm{.}0500\mathrm{.}0300\mathrm{.}0200\mathrm{.}010$

To simplify the problem, we will assume we are only going to do this for one year.

If we make the component in house or buy from supplier A$,$ the quantity produced or purchased will equal demand.

If we buy from Supplier B:

$$ If demand is less than $40,000$ units, we will buy $40,000$ units and sell the excess $($unused$)$ quantity. Assume any unused items can be sold as scrap for $$12\mathrm{.}00$ each. $($Notice this salvage value reduces the total cost for the year.$)$

$$ If demand is $>=40,000$ units, the quantity purchased will equal demand and we won$$t need to sell any excess.