Which process is best for this contract

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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:

 

General Purpose Equipment (GPE)

Flexible Manufacturing System (FMS)

Dedicated Machine (DM)

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

Which process is best for this contract?

Reference no: EM131354742

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