Question

Can someone please 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 Annual contracted units Annual fixed cost Per unit variable cost General-Purpose Equipment (GPE) 250,000 $150,000 $18.00 Flexible Manufacturing System (FMS) 250,000 $225,000 $14.75 Dedicated Machine (DM) 250,000 $500,000 $13.50 Based on the cost, the process that is best suited for the current contracted volume is Click to select your answer(s). GPE FMS DM

Answer 1

Calculation of costs under each of the methods,

Expense	GPE	FMS	DM
Variable cost*	4,500,000	3,687,500	3,375,000
Fixed cost	150,000	225,000	500,000
Total Cost	4,650,000	3,912,500	3,875,000

As the cost is lower under dedicated method option,it is the better option under current volume.

* Variable cost = 250,000*per unit variable cost.