Reduction in defect costs

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Reference no: EM132266210

In a recent move to save money, Farmland Dairy has changed the packaging of its milk so that less raw materials are consumed. Unfortunately, the change has led to difficulties in filling the cartons with milk. Both underfilling and overfilling of the 64 ounce cartons is occurring. Overfilling leads to sticky cartons and underfilling leads to visibly less milk in the carton; both defects lead to unhappy customers. To avoid defects, management believes all cartons should be filled with at least 63.7 and no more than 64.3 ounces. From sampling, it is determined that the current filling process is normally distributed with a mean of 64.1 ounces and standard deviation of 0.2 ounces.

Management believes a very simple fix can "center" the process within the user specifications so that the mean is 64.0 ounces and the standard deviation remains unchanged at 0.2 ounces. If each defective carton is estimated to cost the business $0.65 and the annual volume of cartons sold is 300,000 per year, how much value (i.e reduction in defect costs) can be created annually by centering the process within user specifications? (round your answer to the nearest penny)

Reference no: EM132266210

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