Borges Machine Shop, Inc., has a 1-year contract for the production of 200,000 gear housing for a new off-road vehicle. Owner Luis Borges hopes the contract will be extended and the volume increase next year. Borges has developed costs for three alternatives - these are general-purpose equipment (GPE), flexible manufacturing system (FMS) and expensive but efficient dedicated machine (DM). The costs are as follows:

	GPE	FMS	DM
ANNUAL CONTRACTED UNITS TO BE PRODUCED	200,000	200,000	200,000
ANNUAL FIXED COSTS	$100,000	$200,000	$500,000
PER UNIT VARIABLE COSTS	$15.00	$14.00	$13.00

[NOTICE: Units remain the same but fixed costs increase with the cost of the equipment but per unit costs decrease due to the increased efficiency of the equipment]

As the consultant, you need to:

1. Determine the most economical volume for each process (the crossover points);
2. Determine which process to select for the contract identified above (200,000 units);
3. Determine the best process for each of the following volumes to be produced:
   1. 75,000
   2. 275,000
   3. 375,000
4. If a contract for the second and third years is pending, what the implications for process selection?
5. Prepare a GRAPH showing the FIXED COSTS, TOTAL COSTS (VARIABLE COSTS X QUANTITIES), and CROSSOVER POINTS for each process and each volume.

Write out your work for each, show the answer, and prepare a one-page summary that answers each of the questions.

FOR THREE EXTRA CREDIT POINTS:

Jenny Lee Bakery in McKees Rocks can produce cinnamon rolls at a high rate. Last week they actually produced 150,000 cinnamon rolls. The effective capacity of Jenny Lee is 175,000 rolls per week. The process operates 7 days per week with three 8 hour shifts per day. The process was designed to make cinnamon rolls at 1200 per hour. Determine the design capacity, utilization, and efficiency for Jenny Lee when they produce the cinnamon rolls.