Investigating a Process (L.0.2): A production manager of Robots. Inc., is trying to determine if a production
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Investigating a Process (L.0.2): A production manager of Robots. Inc., is trying to determine if a production process is in control. The cost of investigation is $6,000, and if the process is out of control, it will cost the company $14,000 to correct the error. By correcting the error, the present value of the cost savings until the next scheduled investigation will be $40,000. The in-control probability is .80, and the out-of-control probability is .20.
Required:
a. Should the process be investigated? Why or why not?
b. At what out-of-control probability level would the manager be indifferent about whether to investigate?
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