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```									Problem 7.5
Meile Machine Shop, Inc., has a one year contract for the production of 200,000 gear housings for a new
vehicle. Owner Larry Meile hopes the contract will be extended and the volume increased next year. Meile
has
developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing
system (FMS),
and expensive, dedicated machine (DM). The cost data follow:
General Purpose Equip (GPE) Felixible Manufacturing System (FMS) Dedicated Machine (DM)
Annual contracted units 300,000 300,000 300,000
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?

For U units produced, the functions are as follows
For GPE, the cost is C = 100000 +15U
For FMS, the cost is C = 200000 + 14U
For DM, the cost is C = 500000 + 13U.

Letting U = 200,000, we see that

GPE C = 100000 +15(200000)=3100000
FMS C = 200000+14(200000)=3000000
DM C = 500000 + 13(200000) = 3100000

So, the cheapest is FMS.

Problem 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.

We proceed as above, but this time with different values for U.

When U = 75000,
GPE C = 1225000
FMS C = 1250000
DM C = 1475000

So, the cheapest is GPE

When U = 275000,
GPE C = 4225000
FMS C = 4050000
DM C = 4075000

So, the cheapest is FMS.

When U = 375000
GPE C = 5725000
FMC C = 5450000
DM C = 5375000

So, the cheapest is DM.

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