62.7k views
15 votes
The cost of a breakdown is $2,000, and the cost of a preventive maintenance program is $2,000 per month. If the preventive maintenance program is adopted, the probability of a machine breakdown is negligible. How much better off per month would the firm be if it adopted preventive maintenance

1 Answer

9 votes

This question is incomplete, the complete question is;

Suppose that for a particular piece of machinery, the frequency distribution of monthly breakdowns is as follows;

Number of breakdowns prob.

0 0.50

1 0.25

2 0.10

3 0.10

4 0.05

The cost of a breakdown is $2,000, and the cost of a preventive maintenance program is $2,000 per month. If the preventive maintenance program is adopted, the probability of a machine breakdown is negligible. How much better off per month would the firm be if it adopted preventive maintenance

Answer:

the firm will be $100 worse off per month if it adopted preventive maintenance.

Explanation:

Given the data in the question;

the probability of breakdown iwill be;

= (0×0.5) + (1×0.25) + (2×0.10) + (3×0.10) +(4×0.05)

= 0 + 0.25 + 0.2 + 0.3 + 0.2 = 0.95 or 95%

Now the cost of machine failure will be;

⇒ 2000 × 0.95= $1900

if they implemented preventive measures, the cost is $2000,

if the preventive measure taken the cost is $2000, the benefit is for $1900, and the output is additional cost of $100.

Therefore the firm will be $100 worse off per month if it adopted preventive maintenance.

User Michael Grant
by
9.2k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories