David, a Quality Inspector for Hill & Clark, is concerned about the quality of a

Question

David, a Quality Inspector for Hill & Clark, is concerned about the quality of a batch of several thousand items that his company will be receiving next week. Hill & Clark manufactures cash registers for restaurants and is expecting a shipment of drawers, an important component of the cash register. David decides to first conduct a break-even analysis to see which inspection approach might be most appropriate from a cost perspective—no inspection, sampling, or full inspection. If the cost of replacing a defective drawer once it has been assembled is $21 and the cost of inspecting items in the incoming shipment is $1 each, beyond what estimated proportion of defectives in the batch would David prefer to inspect 100% of the shipment instead of sampling?

2.3% defective

6.8% defective

6.0% defective

4.8% defective

2.3% defective

6.8% defective

6.0% defective

4.8% defective

Explanation / Answer

Let d be the defect percentage.

So d*21 is the total cost of replacing the defective.

1 is cost of inspecting each.

so d*21 = 1 for equilibrium

So d = 1/21 = 0.0476 = 4.76 % = 4.8%

Ans D

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