Instructions

1. Carefully answer each question below.
2. Save this completed assignment as YourLastName_FirstInitial_Assmt3
3. Submit your completed document to the eCentennial dropbox for this assignment on or before Saturday 11:59 pm of the week of Module 11.

Questions

1. Meile Machine Shop, Inc., has a 1-year contract to produce 200,000 gear housings for a new off-road vehicle. Owner Larry Meile 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:

	GENERALPURPOSE 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? (4 marks)

2. What is efficiency? (1 mark)

3. An electronics firm is currently manufacturing an item that has a variable cost of $.50 per unit and a selling price of $1.00 per unit. Fixed costs are $14,000. Current volume is 30,000 units. The firm can substantially improve the product quality by adding a new piece of equipment at an additional fixed cost of $6,000. Variable cost would increase to $.60, but volume should jump to 50,000 units due to a higher-quality product.

Should the company buy the new equipment? (5 marks)