A company is reviewing its policy of putting each sub-assembly bought in from outside through a detailed inspection process on delivery. The firm can either inspect or not inspect. The sub-assembly may either come up to the required quality standard (90 % of the time), or fail to do so (10 % of the time).

It costs K10 to inspect a sub-assembly and another K10 to put right any defect found at that stage. If the sub-assembly is not inspected and is then found to be faulty at the finished goods stage the cost of rework is K40.

Advise the firm what to do.