Part 2 The option GPE is best when the contracted volume is below 3610000 3610000 units (enter your response as a whole number). Part 3 The option FMS is best when the contracted volume is between 3375000 3375000 and 3610000 3610000 units (enter your responses as whole numbers). Part 4 The option DM is best when the contracted volume is over 3405000 3405000 units (enter your response as a whole number).
Part 2 The option GPE is best when the contracted volume is below 3610000 3610000 units (enter your response as a whole number). Part 3 The option FMS is best when the contracted volume is between 3375000 3375000 and 3610000 3610000 units (enter your responses as whole numbers). Part 4 The option DM is best when the contracted volume is over 3405000 3405000 units (enter your response as a whole number).
Chapter19: Pricing Concepts
Section: Chapter Questions
Problem 6DRQ
Related questions
Question
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
|
$100,000
|
$225,000
|
$480,000
|
|
Per unit variable cost
|
$16.00
|
$14.00
|
$13.00
|
Part 2
The option GPE is best when the contracted volume is below
3610000
3610000
units (enter your response as a whole number).Part 3
The option FMS is best when the contracted volume is between
3375000
3375000
and
3610000
3610000
units (enter your responses as whole numbers).Part 4
The option DM is best when the contracted volume is over
3405000
3405000
units (enter your response as a whole number). Expert Solution
Step 1
To calculate the total cost for each of the options we would have to use the following formula:
Total Cost (TC) = Fixed Cost (FC) + [Variable Cost (VC) x Annual Contract Units (ACU)]
For GPE: TC = $100,000 + ($16.00 x 225,000)= $37,00,000
For FMS:TC = $225,000 + ($14.00 x 225,000)= $3,37,000
For DM:TC = $480,000 + ($13.00 x 225,000)= $3,40,000
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