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% inspection prior to shipment is $.50 per poster,at what point is she indifferent between complete inspection or shipment without inspection?
A)5%
B)10%
C)12%
D)20%
E)25%

Question

Quizplus · Accepted Answer

The point of indifference is when the cost of inspection equals the cost of replacing defective posters. The cost of inspection is $0.50 per poster, and the cost of replacing a defective poster is $10.00. To find the indifference point, divide the inspection cost by the replacement cost: $0.50 / $10.00 = 0.05 or 5%.