Question: Borges Machine Shop, Inc., has a 1-year contract for the production of 225,000 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

225,000

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	225,000	225,000	225,000
Annual fixed cost	$100,000	$200,000	$500,000
Per unit variable cost	$16.00	$14.00	$13.00

Part 2

The option GPE is best when the contracted volume is below

enter your response here

FMS ?

DM?

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