Question

A company produces products at a cost of $32 each. Defective products cost an additional $15 each to repair. The probability of no defective products is 80%. The probability of 5% defective products is 20%. What is the expected cost of producing 500 products?

Answer 1

The expected cost of producing 500 products is $14300

Explanation:

Given:

Cost of products = $32

Cost of repair = $15

Probability of no defective pens = 80%

Probability of defective pens = 20%

Cost of 500 products = ?

Number of defective products = $\frac{20}{100} X 500$

n = 100

Number of good products = $\frac{80}{100} X 500$

n(good) = 400

Cost of production of good products = 400 X $32

                                                              = $12800

Cost of defective pens = 100 X $15

                                      = $1500

Expected cost of producing 500 products = $12800 + $1500

                                                                       = $14300

Therefore, the expected cost of producing 500 products is $14300