John Morton, Director of Materials Management for Computer Products Corporation

question 45

Essay

John Morton, director of materials management for Computer Products Corporation (CPC) in San Jose, is now reviewing next year's plans for the supply of a component that is now purchased from Osiega Ltd., a company in Japan. The component is the PS100 power supply assembly that is used in many of CPC's products.
CPC pays the supplier more than $7 million per year for these units, and John wonders if money could be saved by developing another supplier for this component or if CPC should gear up to manufacture the power supply assemblies in-house within one of the CPC's own production plants.
John's purchasing-analysis staff has developed the following estimates: The purchasing-analysis group has learned that CPC will need about 550,000 of the PS100 units next year.
a.Which supply source provides the least cost for next year?
b.How many PS100 units would have to be bought next year for each of the sources to be the least-cost source?

---

Definitions:

Slope

In mathematics, it refers to the steepness or incline of a line, indicating the rate at which y-values change with respect to x-values.

Budget Constraint

The limits imposed on household choices by income, wealth, and product prices.

Choice Set

The collection of all possible options available for selection by a decision-maker.

Leftover Income

The amount of income that remains after all necessary expenses, such as bills and living costs, have been paid.