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Borges Machine Shop, Inc., has a 1-year contract for the production of 250,000 gear housings for a new off-road vehicle. Owner Luis Borges hopes the

Borges Machine Shop, Inc., has a 1-year contract for the production of

250,000

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

250,000

250,000

250,000

Annual fixed cost

$125,000

$250,000

$525,000

Per unit variable cost

$15.00

$14.00

$13.00

The option GPE is best when the contracted volume is below

nothing

units (enter your response as a whole number).

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