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Case: The fire department has a number of failures with its oxygen masks and is evaluating the possibility of outsourcing preventive maintenance to the manufacturer. Because of the risk associated with a failure, the cost of each failure is estimated at $2000. The current maintenance policy (with station employees performing maintenance) has yielded the following history:
Number of breakdowns 0 1 2 3 4 5
Number of years in which 4 3 1 5 5 0
breakdowns occurred.
This manufacturer will guarantee repairs on any and all failures as part of a service contract. The cost of this service is $5000 per year.
Question 1: What is the expected number of breakdowns per year with station employees performing maintenance?
Question 2: What is the cost of the current maintenance policy?
Question 3: What is the more economical policy?
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