Question

Output from a process contains 0.02 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. However, the inspector, who van test 20 units per hour, is paid $8 per hour, including fringe benefits. Should an inspection station be established to test all units

Answer 1

Answer: Inspection station should be established.

Explanation:

Cost to company if defect is not detected:

= Cost to replace * percentage defects * number of units tested per hour

= 25 * 0.02 * 20 units

= $10 per hour

Inspector is paid $8 per hour.

The fees to the inspector are less than the cost of replacement so the Inspection station should be established as it saves costs.