Pandra Manufacturing Specifies the Quality Characteristic of One of Its $\pm$

question 11

Essay

Pandra Manufacturing specifies the quality characteristic of one of its popular products to be 0.500 $\pm$ 0.020.An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125 per unit.The customer service manager is of the opinion that the product is likely to fail during the warranty period when the quality characteristic differs from the target by more than 0.020 in either direction.
Required: To gain a better understanding of the impact of quality variation,you,the product manager,would like to know the following values in a Taguchi loss function,L(x).
(1)Cost coefficient,k.
(2)Estimated losses,L(x),when the actual quality characteristic,x,is 0.505.
(3)Estimated losses,L(x),when the actual quality characteristic,x,is 0.510.
(4)The amount of change in the estimated losses when the deviation from the quality characteristic doubled.

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Definitions:

Mortgage-backed CDOs

Complex structured finance products that pool together cash flow-generating assets and repackages this asset pool into tranches that can be sold to investors, specifically focusing on mortgage-backed securities.

Variable Rate Loans

Loans with interest rates that can fluctuate over time based on an underlying benchmark rate or index.

Tranches

Portions or slices of debt or securities that are structured to divide risk or return in a way that is marketable to different investors.

Credit Risk

Credit risk refers to the possibility that a borrower will default on a loan by failing to make the necessary payments.