Question

Juryo mume Hop, Inc. has a 1-year contract for the production of 200,000 gear housings for a new off-road vehicle. Owner Luis Bor extended and the volume increased next year Borges has developed costs for three alternatives. They are general-purpose equipment (G system (FMS), and expensive, but efficient, dedicated machine (DM). The cost data follow Annual contracted units Annual foxed cost Per unit variable cost General Purpose Equipment (GPE) 200.000 $150,000 $15.00 Flexible Manufacturing System (FMS) 200,000 $225,000 $14.00 Dedicated Machine (DM) 200.000 $525.000 $13.00 The option GPE is best when the contracted volume is below 75000 units (enter your response as a whole number). The option FMS is best when the contracted volume is between and units inter your responses as whole numbers) Enter your answer in the edit fields and then click Check Answer part remaining Clear AN

Answer 1

To compute the contracted volume in favor of FMS, we need to compare it with the DM option
	Additional Fixed Cost			$525,000-$225,000			$300,000
	Savings in Variable Cost			$14-$13			$1
	No of units			Additional Fixed Cost			$300,000
				Savings in Variable Cost			$1
						=	300,000
If the units are between 75000 & 300,000 it is better to use option FMS vs DM.
For Example, if the units are 200,000
	Particulars			Option FMS			Option DM
	Fixed Cost			$225,000.00			$525,000.00
	Variable cost (200,000 units)			$2,800,000.00			$2,600,000.00
	Total Cost			$3,025,000.00			$3,125,000.00