Phillips Screw Company produces screw fittings. It is determined that T = 1 inch in diameter. Specification limits allow a variation of plus or minus 0.5 inches. Products produced at values beyond the specification limits lose $15. A sample of five units produced showed the following values: $$\begin{array} { l c }
\text { Unit Number } & \text { Actual Diameter (Y) } \
\text { Unit } 1 & 1.2 \
\text { Unit 2 } & 1.3 \
\text { Unit 3 } & 0.8 \
\text { Unit } 4 & 0.9 \
\text { Unit } 5 & 1.0
\end{array}$$ What is the cost of hidden loss for production of 50,000 units?

Question

Phillips Screw Company produces screw fittings. It is determined that T = 1 inch in diameter. Specification limits allow a variation of plus or minus 0.5 inches. Products produced at values beyond the specification limits lose $15. A sample of five units produced showed the following values: $$\begin{array} { l c } 
\text { Unit Number } & \text { Actual Diameter (Y) } \
\text { Unit } 1 & 1.2 \
\text { Unit 2 } & 1.3 \
\text { Unit 3 } & 0.8 \
\text { Unit } 4 & 0.9 \
\text { Unit } 5 & 1.0
\end{array}$$ What is the cost of hidden loss for production of 50,000 units?

Quizplus · Accepted Answer

The specification limits are 0.5 to 1.5 inches. Units 2 and 3 are outside these limits, so 2 out of 5 units are defective. For 50,000 units, 20,000 would be defective (2/5 * 50,000). The cost of loss is $15 per defective unit, so the total cost is 20,000 * $15 = $300,000.

Phillips Screw Company Produces Screw Fittings What Is the Cost of Hidden Loss for Production of T