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 $2,000. 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 5 2 3 3 7 0

a) What is the expected annual cost of the current maintenance policy with station employees performing maintenance?

b) Which is the more economical practice to use? Assume that if the maintenance is outsourced, the workers currently performing this work will keep their jobs.

Explanation / Answer

expected number of breakdowns per year = 45/20 = 2.25

cost of current maintainance policy = 2.25 * 2000 = 4500

if the cost of outsourcing is greater than the cost of current maintenance policy , then present inhouse maintenance is better

number of break down number of years break down occurs product of number of break downs and frequency 0 5 0 1 2 2 2 3 6 3 3 9 4 7 28 5 0 0 Total 20 45

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