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Operations And Supply Chain Management
Found in: Page 345
Operations And Supply Chain Management

Operations And Supply Chain Management

Book edition 14th
Author(s) F. Robert Jacobs
Pages 800 pages
ISBN 9780078024023

Short Answer

Question: A company currently using an inspection process in its material receiving department is trying to install an overall cost reduction program. One possible reduction is the elimination of one inspection position. This position tests material that has a defective content on an average of 0.04. By inspecting all items, the inspector can remove all defects. The inspector can inspect 50 units per hour. The hourly rate including fringe benefits for this position is $9. If the inspection position is eliminated, defects will go into product assembly and will have to be replaced later at a cost of $10 each when they are detected in final product testing.

  1. Should this inspection position be eliminated?

Answer

Inspection must be ceased since the expense of not inspecting is greater than the expense of examining.

See the step by step solution

Step by Step Solution

Step 1:  Calculation of the number of defective rate material

Step 1: Calculation of the number of defective rate material

r = 0.04

Here, r = material average defective rate.

I = 50

I is the number of visits done by the inspector per hour.

W = $9

The number of defective materials expected to be found and corrected by inspector = average defective rate of material × number of inspections per hour.

Given

The average defective rate material is 0.04

The number of inspections per hour is 50. Therefore,

= 0.04×50

= 2 units.

Step 2: How the inspection position is eliminated

Step 2: How the inspection position is eliminated

The formula is given below:

The per-hour cost of known inspection = cost of two defective products if they might not have been observed and excluded by the inspector = estimated error margins material identified and solved by inspector × production assembly replacement cost.

= 2×10

= $20

Inspection should be discontinued. The cost of not inspecting is more than the cost of inspecting.

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