A quality inspector for Alpha-Beta Co. is concerned about the quality of the bat

Question

A quality inspector for Alpha-Beta Co. is concerned about the quality of the batch of several thousand blank DVD disks which his company produced this week and is preparing to ship. If the cost of replacing a defective DVD disk once it has been shipped is $2.00, while the cost of 100 percent inspection prior to shipment is $.40 each, at what point is he indifferent between 100 percent inspection and shipment without inspection?

a. 0 Percent Defective

2 Percent Defective

5 Percent Defective

20 Percent Defective

a. 0 Percent Defective

2 Percent Defective

5 Percent Defective

20 Percent Defective

Explanation / Answer

Let say d is number of defects and N be units shipped

when at no sampling the replacement cost is equal to inspection cost

2d=0.4N

d/N=0.4/2=0.2

hence defect % =d/N *100=0.2*100=20%

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