1) Cost Analysis:

General-Purpose Equipment (GPE):

 Fixed Cost: $150,000

 Variable Cost per unit: $10

Total Cost for GPE = Fixed Cost + (Variable Cost × Number of Units)

Total Cost for GPE = $150,000 + ($10 × 130,000)

Total Cost for GPE = $150,000 + $1,300,000

Total Cost for GPE = $1,450,000

Flexible Manufacturing System (FMS):

 Fixed Cost: $350,000

 Variable Cost per unit: $8

Total Cost for FMS = Fixed Cost + (Variable Cost × Number of Units)

Total Cost for FMS = $350,000 + ($8 × 130,000)

Total Cost for FMS = $350,000 + $1,040,000

Total Cost for FMS = $1,390,000

Dedicated Automation (DA):

 Fixed Cost: $950,000

 Variable Cost per unit: $6

Total Cost for DA = Fixed Cost + (Variable Cost × Number of Units)

Total Cost for DA = $950,000 + ($6 × 130,000)

Total Cost for DA = $950,000 + $780,000

Total Cost for DA = $1,730,000

Conclusion:

Based on the cost analysis, the process with the lowest total cost for producing 130,000 units of the new
product is the Flexible Manufacturing System (FMS), with a total cost of $1,390,000.

2) Volume Ranges for Each Process:

To identify the volume ranges where each process should be used, we can compare the fixed costs of
each process. Typically, we'd choose the process with the lowest fixed cost within a certain volume
range.
  For low volume ranges, GPE might be preferred due to its lower fixed cost compared to FMS and
DA.

 For moderate volume ranges, FMS might be the best choice, as it balances fixed and variable
costs more effectively than GPE and DA.

 For high volume ranges, DA might become the most cost-effective option despite its higher fixed
cost, due to its lower variable cost per unit.

3) Implications of Contract Renewal:

If Jackson Custom Machine is able to renew the contract for another one or two years, it could impact
the decision in several ways:

 Economies of scale: With a longer contract term, the company might be able to negotiate better
prices for materials or equipment, potentially reducing variable costs.

 Process optimization: Over time, the company may identify opportunities to improve efficiency
or reduce costs in the chosen process.

 Contract terms: Depending on the terms of the contract renewal, the company might need to
reassess the suitability of the chosen process based on any changes in demand or requirements.