Problem: Marginal analysis: climate control devices, inc. estimates that sales of defective thermostats cost the firm an average of $25 ea. for replacement or repair. An independent engineering consultant has recommended hiring quality control inspectors so that defective thermostats can be identified & corrected before shipping. The following schedule shows the expected relation between the # of quality control inspectors & the thermostat failure rate, defined in terms of the % of total shipments that prove to be defective. The firm expects to ship 250,000 thermostats during the coming year, & quality control inspectors ea. command a salary of $30,000 per year. A. construct a table showing the marginal failure reduction (in units) & the $ value of these reductions for ea. inspector hired. B. how many inspectors should the firm hire? C. 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? The table should have been typed in before the questions. I don’t know where to start.
# of quality control inspectors thermostat failure rate(%)
0 5.0
1 4.0
2 3.2
3 2.6
4 2.2
5 2.0