What is expected opportunity loss of optimal decision

Reference no: EM131388783

A manufacturer is considering replacement of an existing machine that performs an operation on a part. The variable costs are $0.38 per piece on the existing machine and $0.05 per piece on the new machine. The cost of the new machine is $40,000, while the existing machine can be scrapped at a value of $5400. It is known that the proportion nonconforming using the existing machine is 0.05. With the new machine, since the nonconformance rate will be influenced by the operator and the new machine, it cannot be specified exactly. Based on experience, the estimated probability distribution of the proportion nonconforming for the new machine is shown in Table 10-10. An order exists for 100,000 parts.

Assume that the entire cost of the new machine can be assigned to this order. Note that costs may have to be calculated on the basis of good parts produced.

(a) If a decision has to be made without sampling, what is that decision? What is the expected opportunity loss of the optimal decision?

(b) Suppose that the seller of the new machine gives you the opportunity to sample the output from a new machine set up at another plant. You select a sample of 100 parts and find 4 nonconforming. What is your optimal decision?

Proportion Nonconforming, P	Probability, P(p)
0.05	0.2
0.07	0.25
0.09	0.35
0.11	0.3

Reference no: EM131388783

Questions Cloud

Will the plan meet given criterion : If we desire batches that are 5% nonconforming to be accepted with a probability of no more than 0.04, which of the plans above would be preferable? Will the plan meet this criterion?

Relationship between the united states and china : What is the relationship between the United States and China today? How do you think the relationship between the US and China could be improved or do you not believe it should or could be improved?

Determine the single sampling plans : Determine the single sampling plans that will accept lots that are 6% nonconforming 12% of the time. Use acceptance numbers of 1, 2, and 4. From a producer's point of view, which of these plans would you choose?

Explore product or service including its main characteristic : Describe the product or service, including its main characteristics. Why do you believe this product is worthwhile? A profile of your audience/s. Why are these audience/s important?

What is expected opportunity loss of optimal decision : If a decision has to be made without sampling, what is that decision? What is the expected opportunity loss of the optimal decision?

Slave auctions in the american colonies : Identify the name given to the most dangerous portion of the journey of slave ships from Africa to the slave auctions in the American colonies and the Caribbean.

Primary causes of the march revolution : What were the primary causes of the March Revolution (the one that overthrew the tsar) in the Russian Empire. Two specific causes and analyze their interconnections, focus on social, political, and economic reasons.

Explain the purpose of detect controls : AUDT317 AUDITING Group Assignment. Explain the purpose of detect controls. Why would it be important for an entity to have both types of controls (prevent and detect controls)

Myths associated with egypt : What are the myths associated with Egypt and who are the significant people in it?

User Account

All Pages