You have received a purchase requisition for 5,000 roller bearings. The purchase requisition estimate is $8.00 per unit for a total of $40,000. This estimate is based on a recent estimate prepared by our local engineering staff as part of a routine review of items whose annual total purchase price exceeds $100,000. The estimate was prepared independently using manufacturing principles and factors commonly used in the bearing industry.
The procurement history indicated that the last purchase of the item was 6 months ago. At that time, 2,000 units were purchased at a price of $12.00 each. Brittle Corporation has been the sole source for these bearings since they purchased their only competitor about five years ago. The price for the last competitive price was $5.75 five years ago, just before the merger.
a. Based on the information, what is your best estimate of a reasonable price for the roller bearings?
b. What additional information would be useful in your analysis and where might you go to obtain it?