A Company Manufacturing Computer Chips Finds That 8% of All

question 8

Essay

A company manufacturing computer chips finds that 8% of all chips manufactured are defective. Management is concerned
that employee inattention is partially responsible for the high defect rate. In an effort to decrease the percentage of defective
chips, management decides to offer incentives to employees who have lower defect rates on their shifts. The incentive
program is instituted for one month. If successful, the company will continue with the incentive program.
-Over the trial month, 6% of the computer chips manufactured were defective. Management
decided that this decrease was significant. Why might management choose not to
permanently institute the employee incentive program?

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Definitions:

Estimated Line of Cost Behavior

A projection or forecast of how costs will change with different levels of activity.