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 units225,000225,000225,000Annual fixed cost$100,000$200,000$525,000Per unit variable cost$16.00$14.50$13.50

Part 2

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

FMS

DM

GPE