The Quality Control Manager for the NKA Inc -What Alternative Action Should Be Selected According to Maximin Criterion

question 96

Essay

The quality control manager for the NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)the shipment (lot)of incoming material.The historical data indicates that there is 30% chance that the lot is poor quality (S₁),50% chance that the lot is fair quality (S₂),and 20% chance that the lot is good quality (S₃).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$
-What alternative action should be selected according to maximin criterion?

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Definitions:

Gross Profit

Monetary gain made after subtracting the cost of goods sold from total sales revenue, indicating the efficiency of a company's core business activities without including overhead costs.

Income Statement

A financial statement that shows a company's revenue and expenses over a specific period, typically a fiscal quarter or year, to calculate the net income or loss.

Direct Materials

Raw materials that can be directly attributed to the production process of a product and are clearly identified as part of the finished product.

Manufacturing Overhead

All manufacturing costs that are not directly involved in the production process, such as maintenance, supervision, and utilities.