Homework:Homework 2 - Process Design

Question 1, Problem 7.5

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Doha Toy Shop, Inc., has a 1-year contract for the production of

200,000

parts for a new toy. Owner Jasem Al-Ali hopes the contract will be extended and the volume increased next year. Doha 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	$125,000	$200,000	$500,000
Per unit variable cost	$15.00	$14.00	$13.50

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

.