TABLE 10-7 A Buyer for a Manufacturing Plant Suspects That His Primary

question 79

Short Answer

TABLE 10-7
A buyer for a manufacturing plant suspects that his primary supplier of raw materials is overcharging. In order to determine if his suspicion is correct, he contacts a second supplier and asks for the prices on various identical materials. He wants to compare these prices with those of his primary supplier. The data collected is presented in the table below, with some summary statistics presented (all of these might not be necessary to answer the questions which follow). The buyer believes that the differences are normally distributed and will use this sample to perform an appropriate test at a level of significance of 0.01.
Primary Secondary
Material Supplier Supplier Difference
1 $55 $45 $10
2 $48 $47 $1
3 $31 $32 -$1
4 $83 $77 $6
5 $37 $37 $0
6 $55 $54 $1
Sum: $309 $292 $17
Sum of Squares: $17,573 $15,472 $139
-Referring to Table 10-7, the decision rule is to reject the null hypothesis if ________.

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Definitions:

Subcontracting Cost

Expenses incurred when a company hires external suppliers or service providers to perform certain tasks or functions that are part of the production process.

Stockout Cost

The financial impact associated with running out of stock, including lost sales, backorder processing, and customer dissatisfaction.

Inventory Holding Cost

The expenses associated with storing unsold goods, including warehousing, insurance, and spoilage costs.