Based on an expected value criterion

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Reference no: EM131780320

An oil company is instaling an oil pipe from an oil field to refinery. The pipeline requires the welding of 1000 seams, to be carried out by the company's own welders. Defective seams result in leaks, which must be reworked at a cost of $1,200 per seam. It is estimated from past experiance that 5% of the seams will be defective with probability 0.30, or 10% will be defective with probability 0.50, or 20% will be defective with probability 0.20. The company can also hire an expert clenup team of welders at a one-time cost of $130,00, who would check all of the welds done by the company welders and repair them as required. a. based on an Expected value criterion, should the company bring in the expert clean-up team to check and rework the welds, or repair the welds as they occur? b. The company can also improve its information about the quality of its own welders on this job, by x-ray inspection of randomly selected completed weld at a cost of$2,000. Is it worthwhile to carry out this inspection?

Reference no: EM131780320

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