Question

A manufacturer of a certain product can expect that between 0.3 percent and 0.5 percent of the units manufactured will be defective. If the retail price is $2,500 per unit and the manufacturer offers a full refund for defective units, how much money can the manufacturer expect to need to cover the refunds on 20,000 units?

(A) Between $15,000 and $25,000
(B) Between $30,000 and $50,000
(C) Between $60,000 and $100,000
(D) Between $150,000 and $250,000
(E) Between $300,000 and $500,000

Answer 1

Explanation:

We are told the manufacturer expects 0.3% to 0.5% of units to be defected,

So we find 0.3% and 0.5% of the 20,000units

0.3/100 multiplied by 20000 = 60units

0.5/100 multiplied by 20000 = 100units

So we now know from 20000units, between 60units to 100units will be defected

So we find the price of both 60units and 100units knowing that 1unit cost $2,500

60 multiplied by $2,500 equals $150,000

100 multiplied by $2,500 equals $250,000

So the answer is option D, between $150,000 and $250,000