Question

Problem 7.1 Question Help Borges Machine Shop, Inc., has a 1-year contract for the production of 200,000 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) 200,000 $125,000 $16.00 Flexible Manufacturing System (FMS) 200,000 $250,000 $14.75 Dedicated Machine (DM) 200,000 $500,000 $13.75 Part Based on the cost, the process that is best suited for the current contracted volume is DM GPE FMS Q DM

Answer 1

1. Total cost = fixed cost + number of units x variable cost

process	Fixed	variable	number of units	Total cost
GPE	125000	16	200000	3325000
FMS	250000	14.75	200000	3200000
DM	500000	13.75	200000	3250000

Since FMS has least cost, it is most suitable method.

2.

Cost with HP unit = 3000+200*80 =19000

Cost with SP unit = 1800+240*80 = 21000

HP is better as it has lower cost

3. Actual output = efficiency x effective capacity

=0.8*6000 =4800

4. Effective capacity = actual output / efficiency = 400/0.75 =533.33 =533 units

Note: As per policies, I can answer first 4 parts of a question. Inconvenience is regretted