3. Consider a company which has purchased products from its supplier and sold them to customers. Last

year, the demand for the product was constant at 20 units per month. The company paid $25 to process

an order and arrange delivery. The unit cost was $100 per unit and the annual holding cost was 30% of

the unit cost.

This year, the company is considering manufacturing products by itself. With a production rate of

40 units per month, each unit costs $75 and batch setup costs are $1000. It is expected to have the same

demand rate (20 units per month). Also, the annual holding cost is set at 35% of the unit cost. Would it

be better for the company to produce the item itself rather than purchase it?