Investigating a Process (L.O.2): Manhatten Company's production manager is considering whether to investigate a production process. The

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Investigating a Process (L.O.2): Manhatten Company's production manager is considering whether to investigate a production process. The cost of investigation is $7,000. If the process is found to be out of control, the cost of correcting it is $20,000. If the process is out of control and they correct it, they will have cost savings of $45.000 until the next scheduled investigation. The in-control probability is .65, and the out-of-control probability is .35.

Required:

a. Should the process be investigated? Why or why not?

b. At what out-of-control probability would the manager be indifferent about whether to investigate?

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Cost Accounting

ISBN: 9780256069198

3rd Edition

Authors: Edward B. Deakin, Michael Maher

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