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Refer to Problem. If a contract for the second and third years is pending, what are the implications for process selection?

Problem - 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?

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Category:- Operation Management
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