Need help with 1a and b thanks. Borges Machine Shop, Inc., has a 1-year contract

Question

Need help with 1a and b thanks.

Borges Machine Shop, Inc., has a 1-year contract for the production of 75,000 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: General-Purpose Equipment (GPE) Flexible Manufacturing System (FMS) Dedicated Machine (DM) Annual contracted units Annual fixed cost Per unit variable cost 75,000 75,000 75,000 $480,000 $13.75 $125,000 S225,000 $15.00 $14.75 Based on the total cost, the process that is best suited for the current contracted volume isV Suppose the contracted volume changes to 275,000 gear housings. Based on the total cost, the process that is best suited for the new volume is Suppose the contracted volume changes to 375,000 gear housings. Based on the total cost, the process that is best suited for the new volume is

Explanation / Answer

Total demand = Annual fixed cost + (Variable cost * Units)

For demand 75,000

For GPE

Total cost = 125000 + (15 * 75000)

= 1,250,000

For FMS

Total cost = 225,000 + (14.75 * 75000)

= 1,331,250

For DM

Total Cost = 480000 + (13.75*75000)

= 1,511,250

Hence the best suited process is with least cost which is GPE.

For demand = 275,000

For GPE

Total cost = 125000 + (15 * 275000)

= 4,250,000

For FMS

Total cost = 225000 + (14.75 * 275000)

= 4,273,000

For DM

Total Cost = 480000 + (13.75 * 275000)

= 4,261,250

Hence the best choice is GPE.

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