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Perry Equipment & Association Inc has 1 year contract for the production of 200,000 gear housings for a new off-road vehicle. Owner Adam Perry hopes the contract will be extended and the volume increased next year. Perry 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 follows:
GPE FMS DMAnnual fixed cost ($) 100,000 200,000 500,000Per Unit Variable cost ($) 20 19 18
a. Under which production range is each process appropriate?b. Which process is best for this contract?c. Does your decision change if the per unit variable cost for DM increase to $21?d. Determine the best process for each of the following volumes: (i) 75,000; (ii) 275,000 (iii) 375,000e. If a contract for the second and third years is pending what are the implications for process selection?
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