Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 32

Using Taguchi Loss Function to Determine Tolerance (Appendix) The desired distance for Flextronchip customers is 0.2 mm between two adjacent pins. Any deviation from this value causes interference. The process of handling complaints costs the firm at least $40 per chip. The engineers of the firm expect the average customer will be likely to complain when the distance is off target by at least 0.0001. At the factory, the adjustment can be made at a cost of $1.60, which includes the labor to make the adjustment and additional testing.

Required What should the tolerance be before an adjustment is made at the factory?

Step 1 of 2

The formula to calculate the tolerance is as follows: