Borges Machine Shop, Inc., has a 1-year contract for the production of 75,000 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
Annual contracted units
Annual fixed cost
Per unit variable cost
General-Purpose
Equipment (GPE)
75,000
$100,000
$16.00
Flexible Manufacturing
System (FMS)
75,000
$225,000
$14.00
Dedicated
Machine (DM)
75,000
$450,000
$13.75
Based on the total cost, the process that is best suited for the current contracted volume is
Suppose the contracted volume changes to 275,000 gear housings. Based on the total cost, the process that is best suited for the new volume is
Suppose the contracted volume changes to 375,000 gear housings. Based on the total cost, the process that is best suited…
