Nirvana Products Company Has Just Gone Through a Rigorous Evaluation

question 4

True/False

Nirvana Products Company has just gone through a rigorous evaluation due to sliding profits in the past year. The engineers strongly recommend implementing an aggressive preventative maintenance program, but the accountants say it will cost $50,000. The lawyers insist on a zero-defect product inspection as the units are being packaged, but the accountants say it will cost $40,000. The vice president for production said he just thought it was too expensive of a gamble to take, but the factory manager pointed out that if they did not look ahead at the consequences, they could easily lose $100,000 of sales to their competitors because of shoddy goods, and a costly production shutdown that would cost them another $100,000 if the machinery gives out unexpectedly.
In this situation, the company should not invest in the quality programs being recommended because they are not justified on a cost/benefit basis.

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Definitions:

Variance

A measure of the dispersion of a set of data points around their mean value, indicating how spread out the data points are.

Portfolio

A collection of investments held by an individual or an institution.

Expected Rate

A predicted rate of return or outcome based on certain assumptions or historical data.

Standard Deviation

A statistical measure of the dispersion or spread of a set of values, indicating how much the values differ from the mean.