3. Borges Machine Shop, Inc., has a 1-year contract for the production of 250,000 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:

	General-Purpose Equipment (GPE)	Flexible Manufacturing System (FMS)	Dedicated Machine (DM)
Annual contracted units	250,000	250,000	250,000
Annual fixed cost	$100,000	$250,000	$525,000
Per unit variable cost	$18.00	$14.00	$13.00

Part 1. If the contract for the second and third years is pending, for demand below 37,500 units, which option is the best alternative for Luis.

a.GPE

b. DM

c. FMS

Part 2. For demand above 275,000 units, which option is the best alternative for Luis.

a. DM

b. GPE

c. FMS