A firm can produce and package their own guitar strings, or buy prepacked rolls of “discount” guitar strings. If they load their own strings, there is a production setup cost of

$20. The finished product is valued at $1.23 a set, and the production rate is 500 sets/day.

“Discount” strings cost the firm $1.26 per set and the fixed ordering charge is $3/order. In either case, an inventory carrying charge of 0.24 $/$/year would be used by the company.

Demand for this item is 10,000 sets per year. From the standpoint of replenishment and carrying costs, what should the company do? What other considerations might affect the decision?