Question: 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

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:

Which process is best for thiscontract?

GENERAL PURPOSE FLEXIBLE DEDICATED EQUIPMENT MANUFACTURING MACHINE SYSTEM FMS GPE) (DM Annual contracted units Annual fixed cost Per unit variable cost 200,000 $100,000 200,000 $200,000 200,000 $500,000 15.00 14.00 13.00

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