Problem:
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 the material that has a defective content on the average of 0.04. By inspecting all items, the inspector is able to remove all defects. The inspector can inspect 50 units per hour. The hourly rate including fringe benefits for this position in $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 defected in final product testing.
1) Should the inspection position be eliminated?
2) What is the cost to inspect each unit?
3) Is there benefit (or loss) from the current inspection process? How much?