Question

A company makes a $5 profit on each non-faulty product it sells. Approximately 2% of the products manufactured are faulty, with no way to discover which ones are faulty before delivery. If replacement-and-repair costs for the faulty products are $100 each, what is the profit per item?

Answer 1

98 % items are non faulty.
2% items are faulty.

Let us assume the company sold 100 items in total.Out of which 2 were faulty.
So the company earned a profit = 98 x 5
= $ 490
The cost of faulty items = $ 200
So after replacing the profit = $490 - 200
= $ 290
So, The profit for each item would be = 290 / 100 = $ 2.90

Answer 2

$2.9 is the profit per item.

Explanation:

we have given information as below:

there are total 2% items which are faulty

That means 98% are non-faulty.

Since, he has to pay $100 on faulty items that means loss he is facing is
`.02\cdot 100=$2`

Now, he is getting profit of $5 on non-faulty items that means
`.98\cdot 5=4.90`

Net profit= profit - loss on repairing the items =4.90-2=2.9

Hence, $2.9 is the net profit per item.