Problem 13-1 A company currently using an inspection process in its material rec
ID: 469083 • Letter: P
Question
Problem 13-1
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 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 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.
If the inspector position is eliminated, what will the hourly cost of defects be?
What is the cost to inspect each unit? (Round your answer to 2 decimal places.)
Is there benefit (or loss) from the current inspection process? How much? (Input all amounts as positive values. Round "per unit" value to 2 decimal places.)
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 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 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.
Assume that the line will operate at the same rate (i.e., the inspection rate) if the inspection operation was eliminated.Explanation / Answer
a1. Hourly cost of defects = hourly inspection rate * defect rate * cost per defect = 50*.04*10 = $ 20
a2. As computed in part a1), hourly cost of defects is $ 20 whereas hourly cost of inspector is $ 9. So Inspector is much more cost effective than the cost of defects. There Inspector position should NOT be abolished.
b. Cost to inspect each unit = 9/50 = $ 0.18 per unit
c. Yes, there is a benefit from the current inspection process. The benefit is the difference in cost of replacement of defective parts and the cost of insepector = 20 - 9 = $ 11.
Hourly benefit = $ 11.
per unit benefit = 11/50 = $ 0.22 per unit