Homework: HW2 Save Score: 9.5 of 20 pts 4 of 14 (14 complete) HW Score: 70.3%, 7
ID: 366012 • Letter: H
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Homework: HW2 Save Score: 9.5 of 20 pts 4 of 14 (14 complete) HW Score: 70.3%, 70.3 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 wil 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 Equipment (GPE 250,000 $150,000 $16.00 System (FMS) 250,000 $250,000 $14.00 Machine (DM) Annual contracted units Annual fixed cost Per unit variable cost 250,000 $500,000 $13.00 If the contract for the second and third years is pending, for demand below 50,000 units, option GPE is the best alternative for Luis. For demand above 250,000 units, option | | is the best alternative for Luis.Explanation / Answer
if the demand is for 250,000 units, then costs for each process.
GPE= 150,000+ (250000*16)= $150,000+4,000,000= $4,150,000
FMS= 250,000+(250,000*14)= $250,000+3,500,000= $3,750,000
DM= 500,000 + (250,000*13)= 500,000+3,250,000= $3,750,000
hence, DM is better option if demand is for more than 250,000 units.
if the demand is exactly for 250,000 units, then FMS or DM both carries same cost, hence the decision is in the hands of producer.
if the demand is for more than 250,000 units, DM is the best option with the given specifications.
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