A manufacturer of computer chips has a computer hardware company as its largest

Question

A manufacturer of computer chips has a computer hardware company as its largest customer. The computer hardware company requires all of its chips to meet specifications of 1.2 cm. The vice-president of manufacturing, concerned about a possible loss of sales, assigns his production manager the task of ensuring that chips are produced to meet the specification of 1.2 cm.

Based on the production run from last month, a 95% confidence interval was computed for the mean length of a computer chip resulting in:
95% confidence interval: (0.9 cm, 1.1 cm)

How will this decision impact the chip manufacturer’s sales and net profit?

Explanation / Answer

The specification of the computer chip is 1.2 cm.

Using NORMDIST in excel

=NORMDIST(1.2,0.9,0.1,True)

= 0.99

Using 0.9 to 1.1 cm as interval, it would be difficult for chip manufacturer to sell chip and it would largely affect the net profit. As per the 95% confidence interval, the manufacturer cannot produce desire specification chip (1.1) and hence it would affect sales and net profit.

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