• 7.1 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:

Which process is best for this contract?

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(GPE) Annual contracted 200,000 units Annual fixed cost $100,000 GENERAL- PURPOSE FLEXIBLE EQUIPMENT MANUFACTURING $200,000 DEDICATED MACHINE (DM) 200,000 $500,000 SYSTEM (FMS) 200,000 Per unit variable cost $ 15.00 $ 14.00 $ 13.00