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 volumeincreased next year. Borges has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicatedmachine (DM). The cost data follow:General-PurposeEquipment (GPE)Flexible ManufacturingSystem (FMS)DedicatedMachine (DM)200,000Annual contracted unitsAnnual fixed costPer unit variable cost$125,000$16.00If the contract for the second and third years is pending, for demand below 37,500 units, option FMS is the best alternative for Luis.For demand above 280,000 units, optionis the best alternative for Luis200,000$200,000$14.00200,000$480,000$13.00

Formulae used: Total cost = (Annual Fixed cost + Unit variable cost) * No of units Given:…

Answered: Borges Machine Shop, Inc., has a 1-year…

Marketing

20th Edition

ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

Chapter19: Pricing Concepts

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Problem 6DRQ

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Borges Machine Shop, Inc., has a 1-year contract for the production of 250,000 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 250,000 250,000 250,000 Annual fixed cost $125,000 $250,000 $500,000 Per unit variable cost $18.00 $14.00 $13.00 If the contract for the second and third years is pending, for…
Borges Machine Shop, Inc., has a 1-year contract for the production of 225,000 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 225,000 225,000 225,000 Annual fixed cost $125,000 $250,000 $480,000 Per unit variable cost $18.00 $14.00 $13.00 a.The option GPE is best when the contracted volume is below ------ units (enter your response as a whole number).…
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