Question: ABC TRANSISTOR CORPORATION

The ABC Transistor Corporation ships out transistors in lots of 12. 8% of all transistors produced are defective. ABC promises to repair any defectives which are shipped out. The cost to ABC to repair a transistor is $5.00 plus a fixed cost of $20 if a lot has defectives. If a lot has no defectives, there is no cost, fixed or otherwise.

1. Compute the probability that a lot of transistors will have more than 2 defectives.
2. Compute the probability that a lot of transistors will have at least one defective.
3. For every lot which is shipped out, what is the expected cost to ABC resulting from defective production of transistors?

iv. By a major rehaul of the production process, the defective rate can be reduced to 2%. The cost of carrying this out, based on debt amortization, is $200,000 per annum. ABC sells approximately 100,000 lots (dozens) of transistors per year. Should ABC reduce the defective rate?

v. What other considerations aside from the monetary cost of defective production of transistors, should be taken into account in ABC's decision of whether or not to reduce the defective rate?

NOTE: The binomial tables provided for you on NYU/Classes do not tabulate probabilities for n=12, p = 0.08 and for n=12, p = 0.02. The values of the binomial probabilities for these values of n and p are tabulated on the next page.

Price: $2.99

Solution: The downloadable solution consists of 3 pages
Deliverable: Word Document