Homework: HW2 Save Score: 0 of 20 pts 4 of 14 (14 complete) HW Score: 60.8%, 60.
ID: 365697 • Letter: H
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Homework: HW2 Save Score: 0 of 20 pts 4 of 14 (14 complete) HW Score: 60.8%, 60.8 of 100 pts Problem 7.4 Question Help * 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 Flexible Manufacturing Dedicated System (FMS) 250,000 $250,000 $14.00 Equipment (GPE Machine (DM) Annual contracted units Annual fixed cost Per unit variable cost 250,000 $150,000 16.00 250,000 $500,000 $13.00 If the contract for the second and third years is pending, for demand below 50,000 units, option | | is the best alternative for Luis.Explanation / Answer
total cost = fixed cost + total variable cost
At the demand level of 50000 units,
Total cost of GPE machine = 150000 + 16*50000 = $950000
Total cost of FMS machine = 250000 + 14*50000 = $950000
Total cost of DM machine = 500000 + 13*50000 = $1150000
50000 unit is the crossover output between GPE machine and FMS machine.
Hence, the demand below 50000 units, the GPE machine will give the lowest total cost and GPE machine will be most suitable for the demand level below 50000 units.
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