Borges Machine Shop, Inc., has a 1-year contract for the production of 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: General-Purpose Equipment (GPE) Flexible Manufacturing System (FMS) Dedicated Machine (DM) Annual contracted units Annual fixed cost Per unit variable cost Based on the cost, the process that is best suited for the current contracted volume is __________.

total costs for general purpose equipment (GPE) = $125,000 + (225,000 x $15) = $3,500,000
total costs for flexible manufacturing system (FMS) = $200,000 + (225,000 x $14.50) = $3,462,500
total costs for dedicated machine (DM) = $525,000 + (225,000 x $13.50) = $3,562,500

For the current volume, the best option is flexible manufacturing system with a total cost of $3,462,500.

As total volume increases, the DM option becomes more attractive, but in order for it to cost less than FMS, total output should be higher than 325,000 units per year.

525,000 + 13.5x = 200,000 + 14.5x

x = 325,000 units

GPE is only attractive when the total units are lower (below 150,000 units per year):

125,000 + 15x = 200,000 + 14.5x

0.5x = 75,000

x = 150,000