Question
Climate Control Devices, Inc. estimates that sales of defective thermostats cost the firm an average of 25 each for replacement or repair. An independent engineering
Climate Control Devices, Inc. estimates that sales of defective thermostats cost the firm an average of 25 each for replacement or repair. An independent engineering consultant has recommended hiring quality control inspectors so that defective thermostats can be identified and corrected before shipping. The following schedule shows the expected relation between the number of quality control inspectors and the thermostat failure rate, defined in terms of the percentage of total shipments that prove to be defective.
Number of Quality Control Inspectors
Thermostat Failure Rate (percent)
0
5.0
1
4.0
2
3.2
3
2.6
4
2.2
5
2.0
The firm expects to ship 250,000 thermostats during the coming year, and quality control inspectors each command a salary of 30,000 per year.
i.Construct a table showing the marginal failure reduction (in units) and the value of these reductions (in ) for each inspector hired.
ii.How many inspectors should the firm hire?
iii.How many inspectors would be hired if additional indirect costs (lost customer goodwill and so on) were to average 30% of direct replacement or repair costs?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started