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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 off-road 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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