7.5 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:
|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?
7.7 Using the data in Problem 7.5, determine the best process for each of the following volumes: (1) 75,000, (2) 275,000, and (3) 375,000.
7.11 Tim Urban, owner/manager of Urban’s Motor Court in Key West, is considering outsourcing the daily room cleanup for his motel to Duffy’s Maid Service. Tim rents an average of 50 rooms for each of 365 nights (365 × 50 equals the total rooms rented for the year). Tim’s cost to clean a room is $12.50. The Duffy’s Maid Service quote is $18.50 per room plus a fixed cost of $25,000 for sundry items such as uniforms with the motel’s name. Tim’s annual fixed cost for space, equipment, and supplies is $61,000. Which is the preferred process for Tim, and why?
|Tim Urban||Duffy’s Maid Service|
|Annual contracted units||18,250||18,250|
|Annual fixed cost||$61,000||$25,000|
|Per unit variable cost||$12.50||$18.50|