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 hopes the

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: LOP4 GENERALPURPOSE EQUIPMENT

(GPE)

FLEXIBLE MANUFACTURING SYSTEM (FMS)

DEDICATED MACHINE

(DM)

Annual contracted units 200,000 200,000 200,000 Annual fixed cost $100,000 $200,000 $500,000 Per unit variable cost $ 15.00 $ 14.00 $ 13.00 Which process is best for this contract?

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