The fire department has a number of failures with its oxygen masks and is evalua

Question

The fire department has a number of failures with its oxygen masks and is evaluating the possibility of outsourcing preventive maintenance to the manufacturer. Because of the risk associated with a failure, the cost of each failure is estimated at $2,400. The current maintenance policy (with station employees performing maintenance) has yielded the following history:

Number of breakdowns

0

1

2

3

4

5

Number of years in which breakdowns occurred

3

2

1

5

9

1

a) The expected number of breakdowns per year with station employees performing maintenance =____ breakdowns per year (round your response to two decimal places).

b) The cost of the current maintenance policy = $____ (round your response to the nearest whole number).

c) This manufacturer will guarantee repairs on any and all failures as part of a service contract. The cost of this service is $4,800 per year. Given this information, for maintenance the _______(in-house, outsourced) option is the most economical option.

Number of breakdowns

0

1

2

3

4

5

Number of years in which breakdowns occurred

3

2

1

5

9

1

Explanation / Answer

Total number of years involved in breakdown = 9 years

Total number of breakdowns = 0 + 1 + 2 + 3 + 4 + 5 = 15

Thus, expected number of breakdowns per year with station employees performing maintenance

= 15 breakdowns/ 9 years

= 1.67 ( rounded to 2 decimal places )

EXPECTED NUMBER OF BREAKDOWNS PER YEAR WITH STATIONEMPLOYEES PERFORMING MAINTENNCE = 1.67

Thus cost of current maintenance policy

= Expected number of breakdowns per year x cost of each failure

= $ 2400 x 1.67

= $4008

COST OF CURRENT MAINTENANCE POLICY = $ 4008

Cost of service contract is $4800 per year which is more than cost of current maintenance policy of $4000/ year. Therefore, in house option is the cheaper and most economical option

GIVEN THIS INFORMATION , FOR MAINTNANCE THE IN HOUSE OPTION IS THE MOST ECONOMICAL OPTION

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