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 volumeincreased next year. Borges has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicatedmachine (DM). The cost data follow:General-PurposeEquipment (GPE)Flexible ManufacturingSystem (FMS)DedicatedMachine (DM)200,000Annual contracted unitsAnnual fixed costPer unit variable cost$125,000$16.00If the contract for the second and third years is pending, for demand below 37,500 units, option FMS is the best alternative for Luis.For demand above 280,000 units, optionis the best alternative for Luis200,000$200,000$14.00200,000$480,000$13.00

Formulae used: Total cost = (Annual Fixed cost + Unit variable cost) * No of units Given:…

Answered: Borges Machine Shop, Inc., has a 1-year…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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