An Inspection Decision with Quality Costs

Essay

An Inspection Decision With Quality Costs
A company is considering additional final inspection costs of $1 per unit before delivery to customers.The additional inspection should reduce the defective rate from 3 percent to 1 percent.If a defective unit is found,it is scrapped at no additional cost.The manufacturing costs before the final inspection are $200 per unit.The management believes that the external failure costs are $40 per defective unit.
Should the management incur the additional inspection costs?