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There is a 4 percent error rate at a specific point in a production process. If an inspector is placed at this point, all the errors can be detected and eliminated. However, the inspector is paid $9 per hour and can inspect units in the process at the rate of 49 per hour. If no inspector is used and defects are allowed to pass this point, there is a cost of $10 per unit to correct the defect later on. Assume that the line will operate at the same rate (i.e., the inspection rate) if the inspection operation was eliminated.
a. If an inspector is hired, what will be the inspection cost per unit? (Round your answer to 3 decimal places.)
Inspection cost per unit $
b. If an inspector is not hired, what will be the defective cost per unit? (Round your answer to 3 decimal places.)
Defective cost per unit $
c. Should an inspector be hired based on costs alone?
Yes
No
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