You have received a purchase requisition for 5,000 roller bearings. The purchase

Question

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?

Explanation / Answer

a) Given that the previous purchase was at a rate of $ 12 per bearing that can be said to be the reasonable cost, since there is only one supplier.

b) Additional information such as the cost of making a bearing, the value added by the bearing to the selling price of the bearing can be used to estimate the price. For this industry data on the bearing industry in the form of research reports and financial filings, and the cost data of your own company can be used.

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