7.1 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: GENERAL PURPOSE FLEXIBLE DEDICATED EQUIPMENT MANUFACTURING MACHINE (GPE) SYSTEM (FMS) (DM) Annual contracted 200,000 200,000 200,000 units 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? PX 7.2 Using the data in Problem 7.1, determine the most economical volume for each process. PX 7.6 Ski Boards, Inc., wants to enter the market quickly with a new finish on its ski boards. It has three choices: (a) Refurbish the old equipment at a cost of $800. (b) make major modifications at a cost of $1,100, or (c) purchase new equipment at a net cost of $1,800. If the firm chooses to refurbish the equip- ment, materials and labor will be $1.10 per board. If it chooses to make modifications, materials and labor will be $0.70 per board. If it buys new equipment, variable costs are estimated to be $0.40 per board. a) Graph the three total cost lines on the same chart. b) Which alternative should Ski Boards, Inc., choose if it thinks it can sell more than 3,000 boards? c) Which alternative should the firm use if it thinks the market for boards will be between 1,000 and 2,000? PX .. 7.7 Tim Urban, owner/manager of Urban's Motor Court in Key West, is considering outsourcing the daily room cleanup for his motel to Duffy's Maid Service. Tim rents an average of 50 rooms for each of 365 nights (365 x 50 equals the total rooms rented for the year). Tim's cost to clean a room is $12.50. The Duffy's Maid Service quote is $18.50 per room plus a fixed cost of $25,000 for sundry items such as uniforms with the motel's name. Tim's annual fixed cost for space, equipment, and supplies is $61,000. Which is the preferred process for Tim, and why? PX G Breakeven Analysis Crossover/Cost-volume analysis Enter the fixed and variable costs for the options in the data area. You may enter a volume at which to perform a volume analysis. Data Option 1 Option 2 Fixed cost Variable cost 1 Units #DIV/0! Dollars #DIV/0! 2 3. Breakeven points Option 1 vs. Option 2 5 5 7 3 3