Question

There is a 2 percent defect rate at a specific point in a production process. If an inspector is placed at this point, all the defects can be detected and eliminated. The inspector would cost $11 per hour and could inspect units in the process at the current production rate of 53 per hour. If no inspector is hired and defects are allowed to pass this point, there is a cost of $10 per defective unit to correct the defects later on. Assume that the line will operate at the same rate (i.e., the current production rate) regardless of whether the inspector is hired or not.
a. If an inspector is hired, what will be the inspection cost per unit? (Round your answer to 3 decimal places.)

b. If an inspector is not hired, what will be the defective cost per unit? (Round your answer to 3 decimal places.)

c. Should an inspector be hired based on costs alone?

Answer 1

Answer:

a. 0.208

b. 0.189

c. Not Hired

Explanation:

Data provided in the question

Given that

Defective average = 0.02

Current Production rate = 53 per hour

Cost of inspector = 10 per hour

Now by considering the above information, the calculation is shown below

a. The inspection cost per unit in case of inspector is hired

= Cost of Inspector ÷ Production rate

= 11 ÷ 53

= 0.208

b. The defective cost per unit in case of an inspector is not hired is

= Cost of defective unit ÷ Production rate

= 10 ÷ 53

= 0.189

c. Since as we can see that the defective cost per unit is low if we compared with the inspection cost per unit so in this case the inspector should  not be hired