Question: Question content area Part 1 Borges Machine Shop, Inc., has a 1-year contract for the production of 225,000 gear housings for a new off-road vehicle.
Question content area
Part 1
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 | $150,000 | $250,000 | $480,000 |
| Per unit variable cost | $18.00 | $14.75 | $13.50 |
Based on the cost, the process that is best suited for the current contracted volume is
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