The Quality Manager for Graphics, Inc

question 42

Multiple Choice

The quality manager for Graphics, Inc., is concerned about the quality of the lot of several thousand posters which her company printed this week and is now preparing to ship. If the cost of replacing a defective poster once it has been shipped is $10.00, while the cost of complete 100 percent inspection prior to shipment is $.50 per poster, at what point is she indifferent between complete inspection and shipment without inspection?

• A) 5 percent
• B) 10 percent
• C) 12 percent
• D) 20 percent
• E) 25 percent

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Definitions:

Machine-Hours

A measure of production output or activity, where one machine-hour equals one hour of operation of a machine.

Assembly Department

An area in a manufacturing plant where parts are put together to form the end products.

Overhead Rate

A calculated rate used to allocate overhead costs to products or services, usually determined by dividing total overhead costs by an allocation base.

Predetermined Overhead Rate

A rate used to apply manufacturing overhead to products or job orders, calculated based on the estimated costs and activity levels before the period begins.