Question

Borg Machine Shootine has a 1-year contract for the production of 200,000 or housings for a new 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 (OPE), fexible manufacturing system (FMS) and expensive, but elicient, dedicated machine The cost data flow Flexible Manufacturing System (FMS) General Purpose Equipment (GPE) 200.000 $150 000 $18.00 Dedicated Machine (OM) 200.000 $480.000 Arvus contracted units Annual fixed cost Per unit variable cost $200,000 $14.00 The option OP is best when the contracted volume is below unts and your response as a whole number

Answer 1

Sollution  

For this purpose we analysis the Cost Indifference Point of gpe with other two alternative

after it which alternative show lower Cost Indifference Point ,this is answer

IN OUR CALCULATION GIVEN BELOW 12500 UNITS IS LOWER IN BOT ALTERNATIVE

HENCE

The option of GPE IS BEST WHEN THE CONTRACETD VOLUME IS LESS THAN 12500 UNITS

Cost Indifference Point = Differential fixed cost/Differential variable cost per unit
Alternative 1
Indefference analysis of GPE And FMC -Borgas machine shoppe inc
Particulars	General purpose equipment	Flexible manufacturing system	Difference
Annual Fixed cost(a)	$150,000.00	$200,000.00	$50,000.00
Variable cost per unit(b)	$18.00	$14.00	$4.00
Cost Indifference Point(a/b)			$12,500.00
alternative 2
Indefference analysis of GPE and DM -Borgas machine shoppe inc
Particulars	General purpose equipment	Dedicated machine	Difference
Annual Fixed cost	$150,000.00	$480,000.00	$330,000.00
Variable cost per unit	$18.00	$13.00	$5.00
Cost Indifference Point(a/b)			$66,000.00
comparison of cost

cost analysis of GPE , FMC and DM-Borgas machine shoppe inc
Particulars	General purpose equipment	Flexible manufacturing system	Dedicated machine
Annual Fixed cost(a)	$150,000.00	$200,000.00	$480,000.00
Variable cost	$225,000.00	$175,000.00	$162,500.00
Total Cost	$375,000.00	$375,000.00	$642,500.00