Question: 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
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 EQUIPMENT (GPE) | FLEXIBLE MANUFACTURING SYSTEM (FMS) | DEDICATED MACHINE (DM) | |
|---|---|---|---|
| Annual contracted units | 200,000 | 200,000 | 200,000 |
| 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?
*****I understand which process is best for this contract but the rest of the questions I am not sure on.*****
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Using the data in Problem 7.1, determine the most economical volume for each process. PX
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Using the data in Problem 7.1, determine the best process for each of the following volumes: (1) 75,000, (2) 275,000, and (3) 375,000.
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