Compute marginal failure reduction

Reference no: EM1313101

Climate Control Devices, Inc., estimates that sales of defective thermostats cost the firm $50 each for replacement or repair. Boone Carlyle, an independent engineering consultant, has recommended hiring quality control inspectors so that defective thermostats can be identified and corrected before shipping. The following schedule shows the expected relation between the number of quality control inspectors and the thermostat failure rate, defined in terms of the percentage of total shipments that prove to be defective.

Number of Quality Control Inspectors	Thermostat Failure Rate (%)
0	5.0
1	4.0
2	3.2
3	2.6
4	2.2
5	2.0

The firm expects to ship 250,000 thermostats during the coming year, and quality control inspectors each command a salary of $60,000 per year.

a. Construct a table showing the marginal failure reduction (in units) and the dollar value of these reductions for each inspector hired.

b. How many inspectors should the firm hire? How many inspectors should be hired if additional indirect costs (lost customer good will and so on) were to average 30 percentages of direct replacement or repair costs?

Reference no: EM1313101

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