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Output from a process contains 0.04 defective units. Defective units that go undetected into final assemblies cost $22 each to replace.

Output from a process contains 0.04 defective units. Defective units that go undetected into final assemblies cost $22 each to replace. An inspection process, which would detect and remove all defectives, can be established to test these units. However, the inspector, who can test 18 units per hour, is paid $9 per hour, including fringe benefits.

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