Zapota, Inc., has a 1-year contract for the production of 200,000 gear housings for a new off-road vehicle. Owner Alexander Zapota hopes the contract will be extended and the volume increased next year. Zapota 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:
General- Flexible
Purpose Manufacturing Dedicated
Equipment System Machine
(GPE) (FMS) (DM)
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?