Borges Machine Shop, Inc., has a 1-year contract for the production of 75,000 ge
ID: 327715 • Letter: B
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 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: Equipment (GPE)System (FMS) Machine (DM) Annual contracted units Annual fixed cost Per unit variable cost $125,000 $15.00 75,000 $200,000 $14.50 75,000 $480,000 $13.75 Based on the total cost, the process that is best suited for the current contracted volume is Suppose the contracted volume changes to 275,000 gear housings. Based on the total cost, the process that is best suited for the new volume isV Suppose the contracted volume changes to 375,000 gear housings. Based on the total cost, the process that is best suited for the new volumeisExplanation / Answer
a) Current contracted volume = 75000 housings.
GPE -Total cost = 125000 + (15*75000) = 1250000 $
FMS - Total cost = 200000+(14.5*75000) = 1287500 $
DM - Total cost = 480000+(13.75*75000) = 1511250 $
The process that is best suited is GPE with low cost of 1250000 $
b) New contracted volume = 275000 housings.
GPE -Total cost = 125000 + (15*275000) = 4250000 $
FMS - Total cost = 200000+(14.5*275000) = 4187500 $
DM - Total cost = 480000+(13.75*75000) = 3986250 $
The process that is best suited is DM with low cost of 3986250 $
c) New contracted volume = 375000 housings.
GPE -Total cost = 125000 + (15*375000) = 5750000 $
FMS - Total cost = 200000+(14.5*375000) = 5637500 $
DM - Total cost = 480000+(13.75*375000) = 5636250 $
The process that is best suited is DM with low cost of 5636250 $
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