The manager of an inventory system must make the

decision whether to purchase or manufacture an item.

Suppose that an item may be purchased for $25 per unit and

manufactured at the rate of 10,000 units per year for $22

each. However, if purchased the ordering cost is only $5

compared to a setup cost of $50 if it is manufactured.

The yearly demand for this item is 2500 units and the

inventory holding cost rate is 10 percent. Find which option

should be preferred.