Why were the Northern Troops so incensed when the South produced the "Merrimac"?

Perhaps because the South did not, strickly speaking, "produce" the Merrimac. The ship had been built upon the hull of the U.S.S. Merrimac which had been burned and scuttled when the Federals abandoned the Gosport Navy Yard in April, 1861. It was rechristened the C.S.S. Virginia, but in common usage retained its original name.

absolutely correct!