Question
Borges Machine Shop, Inc., has a 1-year contract for the production of 75,000 gear housings for a new off-road vehicle. Owner Luis Borges hopes
Borges Machine Shop, Inc., has a 1-year contract for the production of 75,000 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 Annual fixed cost Per unit variable cost 75,000 $100,000 $18.00 75,000 $250,000 75,000 $500,000 $14.50 $13.00
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