Gray Company estimates its hidden external failure costs using the Taguchi loss function.

Gray produces plastic sheets that vary in thickness and grade. For one of its largevolume products, it was determined that k = $20,000 and T = 0.20 inches in diameter.

A sample of four units produced the following values:

Required:
1. Calculate the average loss per unit.
2. Assuming that 30,000 units were produced, what is the total hidden cost?
3. Assume that the multiplier for Gray’s hidden external failure costs is five. What are the measured external costs? Explain the difference between measured costs and hidden costs.

Transcribed Image Text:

Unit No. Actual Diameter (y) 1234 0.23 0.22 3 0.18 0.19