Question

There is a 4 percent error rate at a specific point in the production process. If an inspector is placed at this point, all the errors can be detected and eliminated. However, the inspector is paid $8 per hour and can inspect units in the process at the rate of 49 per hour. If no inspector is used and defects are allowed to pass this point, there is a cost of $9 per unit to correct the defect later on. Assume that the line will operate at the same rate (i.e., the inspection rate) if the inspection operation was eliminated. If an inspector is not hired, what will be the defective cost per unit? (Round your answer to 3 decimal places.)

Answer 1

Solution and Explanation:

The given data is as follows:

Error rate = 4%, per hour payment of inspector = $8, inspection of units = at the rate of 49 per hour, cost = $9 per unit

The problem can be solved as considering an opportunity to have an improvement of 4% in the quality.

In case inspector is not hired then it will cost .04 multiply 9= $.3.6 per unit and in case the inspector is hired it will cost $ 0.163 approx.(8 divided by 49).

Therefore, on comparison, it is recommended to hire the inspector.