Borges Machine Shop, Inc., has a 1-year contractfor the production of 200,000 gear housings for a new off-roadvehicle. Owner Luis Borges hopes the contract will be extendedand the volume increased next year. Borges has developed costsfor three alternatives. They are general-purpose equipment(GPE), flexible manufacturing system (FMS), and expensive, butefficient, dedicated machine (DM). The cost data follow: GENERAL-PURPOSE EQUIPMENT(GPE) FLEXIBLEMANUFACTURINGSYSTEM (FMS) DEDICATEDMACHINE(DM) Annual contractedunits 200,000 200,000 200,000Annual fi xed cost $100,000 $200,000 $500,000Per unit variable cost $ 15.00 $ 14.00 $ 13.00Which process is best for this contract?
Borges Machine Shop, Inc., has a 1-year contract
for the production of 200,000 gear housings for a new off-road
vehicle. Owner Luis Borges hopes the contract will be extended
and the volume increased next year. Borges has developed costs
for three alternatives. They are general-purpose equipment
(GPE), flexible manufacturing system (FMS), and expensive, but
efficient, dedicated machine (DM). The cost data follow:
GENERAL-
PURPOSE
EQUIPMENT
(GPE)
FLEXIBLE
MANUFACTURING
SYSTEM (FMS)
DEDICATED
MACHINE
(DM)
Annual contracted
units
200,000 200,000 200,000
Annual fi xed cost $100,000 $200,000 $500,000
Per unit variable cost $ 15.00 $ 14.00 $ 13.00
Which process is best for this contract?
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