1. Meile Machine Shop, Inc., has a 1-year contract to produce 200,000 gear housings for a new off-road vehicle. Owner Larry Meilehopes 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:

GENERALPURPOSE

EQUIPMENT (GPE)

FLEXIBLEMANUFACTURING

SYSTEM (FMS)

DEDICATED

MACHINE(DM)

Annual contracted units200,000200,000200,000Annual fixed cost$100,000$200,000$500,000Per unit variable cost$ 15.00$ 14.00$ 13.00

1. Which process is best for this contract? (3 marks)

2. Distinguish between design capacity and effective capacity. (1 mark)

3. What is efficiency? (1 mark)

PLEASE ANSWER WITH DETAILED EXPLANATIONS