Question: Borges Machine Shop, Inc., has a 1-year contract for the production of 75,000 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
75,000
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 | 75,000 | 75,000 | 75,000 |
| Annual fixed cost | $100,000 | $200,000 | $525,000 |
| Per unit variable cost | $18.00 | $14.75 | $13.50 |
Based on the total cost, the process that is best suited for the current contracted volume is
FMS
DM
GPE
.
Suppose the contracted volume changes to
275,000
gear housings. Based on the total cost, the process that is best suited for the new volume is
DM
FMS
GPE
.
Suppose the contracted volume changes to
375,000
gear housings. Based on the total cost, the process that is best suited for the new volume is
FMS
DM
GPE
.
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