Output from a process contains 0.01 proportion of defective units. Defective uni

Question

Output from a process contains 0.01 proportion of defective units. Defective units that go undetected into final assemblies cost $24 each to replace. An inspection process, which would detect and remove all defectives, can be established to test these units. The inspector, who can test 20 units per hour (which matches the current production rate), would be paid $10 per hour, including fringe benefits.

Assume that the line will operate at the same rate (i.e., the current production rate) regardless of whether or not the inspection operation is added.

a-1. Without the inspector, what is the current hourly cost of defects? (Round your answer to 2 decimal places.)

Cost per hour            $

a-2. Should an inspection station be established to test all units based on costs alone?

a-3. If the inspection operation is added, what would be the cost to inspect each unit? (Round your answer to 2 decimal places.)

Cost to inspect            $  per unit

b. What would be the benefit (or loss) from establishing the inspection process? (Input the amount as a positive value. Round your answer to 2 decimal places.)

(Click to select)BenefitLoss            $  per unit

Explanation / Answer

a-1) Without the inspector, hourly rate of defects = .01*production rate*cost of replacement = .01*20*24 = 4.8 $

a-2) No, as inspection cost per hour of 10 $ is higher.

a-3) Cost to inspect each unit = cost paid/units inspected = 10/20 = .50 $ per unit

b. Loss from establishing the inspection process = cost of inspection – savings

= 10 – 4.8 = 5.2 $

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