Question

Problem 13-3 Output from a process contains 0.02 proportion of defective units. Defective units that go undetected into final assemblies cost $25 each to replace. An inspection process, which would detect and remove all defectives, can be established to test these units. The inspector, who can test 20 units per hour (which matches the current production rate), would be paid $8 per hour, including fringe benefits. Assume that the line will operate at the same rate (i.e., the current production rate) regardless of whether or not the inspection operation is added. a-1. Without the inspector, what is the current hourly cost of defects

Answer 1

Answer:

4 per hour

Explanation:

The computation of the current hourly cost of defect is shown below:

= Defective average × cost of inspector × replacement cost

where,

The Defective average is 0.02

The Cost of the inspector is $8

And, the replacement cost is $25

Now placing these values to the above formula

So, the current hourly defective cost is

= 0.02 × $8 × $25

= 4 per hour