There is a 4 percent error rate at a specific point in a production process. If

Question

There is a 4 percent error rate at a specific point in a production process. If an inspector is placed at this point, all the errors can be detected and eliminated. However, the inspector is paid $9 per hour and can inspect units in the process at the rate of 51 per hour.

Problem 10-6 There is a 4 percent error rate at a specific point in a production process. If an inspector is placed at this point, all the errors can be detected and eliminated. However, the inspector is paid $9 per hour and can inspect units in the process at the rate of 51 per hour If no inspector is used and defects are allowed to pass this point, there is a cost of $10 per unit to correct the defect later on. a. If an inspector is hired, what will be the effect on cost per unit? (Round your answer to 3 decimal places.) Cost per unit b. If an inspector is not hired, what will be the effect on cost per unit? (Round your answer to 3 decimal places.) c. Should an inspector be hired? O Yes O No

Explanation / Answer

Cost of Inspection = $9 Replacement Cost = 51 * 0.04 * $10 = $20.40 Benefit = $20.40 - $9 = $10.40 a. If Inspector is hired Cost per unit is $9 b. If Inspector is not hired Cost per unit is $20.40 c. Yes - Inspector should be hired as the benefit is worth $10.40

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