07 Jan

Borges Machine Shop, Inc., has a 1-year contract

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Question: Borges Machine Shop, Inc., has a 1-year contract

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:

Question: Borges Machine Shop, Inc., has a 1-year contract

If the contract for the second and third years is pending, for demand below 37,500 units, option is the best alternative for Luis.
For demand above 275,000 units, option   is the best alternative for Luis.

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