Determine the most economical volume for each process

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Reference no: EM132296071

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 200,000 200,000 200,000

Annual fixed cost $100,000 $200,000 $500,000

Per unit variable

cost $ 15.00 $ 14.00 $ 13.00

b) Determine the most economical volume for each process.

c) Determine the best process for each of the following volumes: (i) 75,000, (ii) 275,000, and (iii) 375,000.

d) If a three year contract is issued (instead of a one year contract), what are the implications for process selection?

Reference no: EM132296071

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