Question: 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

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

Borges Machine Shop, Inc., has a 1-year contract

Based on the cost, the process that is best suited for the current contracted volume is

FMS

GPE

Annual contracted units Annual fixed cost Per unit variable cost General-Purpose Equipment (GPE) 250,000 $125,000 $16.00 Flexible Manufacturing System (FMS) 250,000 $200,000 $14.00 Dedicated Machine (DM) 250,000 $480,000 $13.50

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