CustomMetalworks in Oregon produces guy wire attachments for towers (cell, broadcasting, etc.) according to customer order. The company has determined that guy attachments can be produced on three different machine tools: M1, M2, or M3. An analysis of production cost reveals the following data, where ‘‘fixed cost’’ is a one-time setup cost at an order’s beginning, and ‘‘variable cost’’ is simply a cost per unit produced:

a. Determine the most economical machine tool to use for all order sizes between 1 and 200 units.
Determine the subranges within the overall range of 1 to 200 for which each machine tool is preferred.

b. For an order of size 75, which machine tool should be used to produce the order, and what is the total production cost?

c. For an order of size 160, assume that the preferred (most economical) machine is unavailable. What penalty (expressed in dollars of additional production cost) must be paid if the second most economical machine is used? The third?

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Machine Tool Fixed Cost/Order Variable Cost/Unit $300 $9 M2 $750 $3 M3 $500 $5