The quality manager for Graphics, Inc., is concerned about the quality of the lot of several thousand posters which her company printed this week and is now preparing to ship. If the cost of replacing a defective poster once it has been shipped is $10.00, while the cost of complete 100 percent inspection prior to shipment is $.50 per poster, at what point is she indifferent between complete inspection and shipment without inspection?
A) 5 percent
B) 10 percent
C) 12 percent
D) 20 percent
E) 25 percent

Question

Quizplus · Accepted Answer

If the defect rate is 5 percent, the cost of replacing defective posters (5% of total posters at $10 each) equals the cost of inspecting all posters at $0.50 each.

The Quality Manager for Graphics, Inc