Question

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: ​ (GPE) (FMS) (DM) Annual contracted units 200,000 200,000 200,000 Annual fixed cost $ 100,000 $ 200,000 $ 480,000 Per unit variable cost $ 18.00 $ 14.00 $ 13.00 The option GPE is best when the contracted volume is below _______ units ​(enter your response as a whole​ number)

Answer 1

GPE is best when the contracted volume is below 25,000 units

Step-by-step explanation:

Given:

GPE Annual fixed cost = $100,000

FMS Annual fixed cost = $200,000

GPE Per unit variable cost = $ 18.00

FMS Per unit variable cost = $ 14.00

TO GET THE VOLUME

Set the cost of GPE equal to the cost of FMS.

= GPE Annual cost + (GPE per unit cost ×volume) = FMS Annual cost + (FMS per unit cost ×volume)

$100,000 + ($18)v1 = $200,000 + ($14)v1

Solve for v1

$4.00 v1 = $100,000

v1= $100000/$4.00

v1= 25,000