In: Statistics and Probability
The ABC Transistor Corporation ships out transistors in lots of 12 (n = 12). 10% of all transistors produced are defective. ABC promises to repair any defectives which are shipped out. It also gives a money-back guarantee to customers is a lot has more than 2 defectives. The cost of ABC to repair a transistor is $10.00. The money-back guarantee costs ABC $30.00 in addition to repair costs.
1. Computer the probability that a lot of transistors will have more than 2 defectives.
2. For every lot which is shipped out, what is the expected cost to ABC resulting from defective production of transistors?
3. By major rehaul of the production process, the defective rate can be reduced to 5%. The cost of carrying this out, based on debt amortization, is $200,000 per annum. ABC cells approximately 100,000 lots (dozens) of transistors per year. Should ABC reduce the defective rate?