The Binomial Distribution Is Frequently Used to Help Companies Decide

question 26

Essay

The binomial distribution is frequently used to help companies decide whether to accept or reject a shipment based on the results of a random sample of items from the shipment. For instance, suppose a contract calls for, at most, 10 percent of the items in a shipment to be red. To check this without looking at every item in the large shipment, a sample of n = 10 items is selected. If 1 or fewer are red, the shipment is accepted; otherwise it is rejected. Using probability, determine whether this is a "good" sampling plan. (Assume that a bad shipment is one that has 20 percent reds.)

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Definitions:

Direct Expenses

Direct expenses are costs that can be directly traced to a specific cost object, such as a product or department.

Contribution Margin

The amount by which sales revenue exceeds variable costs of production, indicating how much revenue contributes to fixed costs and profits.

Departmental Profit

The profit generated by a specific department within a company after direct costs and expenses related to the department are subtracted from its revenue.

Total Assets

The sum of all owned resources with economic value that a company possesses, which can contribute to its future revenue.