Refer to Problem 7.5. If a contract for the second and third years is pending, what are the implications for process selection?

In problem 7.5, Meile Machine Shop, Inc., has a 1-year contract for the production of 200,000 gear housings for a new off-road vehicle. Owner Larry Meile hopes the contract will be extended and the volume increased next year. Meile 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 this contract?

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General- Flexible Purpose Manufacturing Dedicated (FMS) 200,000 Equipment Systm Machine (GPE) (DM) Annual contracted units Annual fixed cost Per unit variable 200,000 $100,000 200,000 $200,000 $500,000 cost 15.00 14.0013.00