MIDTERM EXAMINATION

GMB 713 (Managerial Statistics)

DIRECTIONS: Apply your knowledge about descriptive statistics and binomial
probability distributions as you solve the following case problem. Please use
the following format in presenting your solutions.
I.
II.
III.
IV.

Title and Background of the Case

(including all questions to be answered)
Data Presentation
Analysis of the Problem (including the statistical solutions)
Managerial Decisions (including the implications of the solutions)

CASE 1. Defect Sampling : Descriptive Statistics and

Binomial Distribution
Background
Defect sampling is used in industrial settings to determine the types
and amounts of defects in manufactured items. Items at various stages of
production are removed from the process and inspected for defects.
Sustained testing allows operations managers to discover whether some part
of the manufacturing process is failing to meet performance criteria and
product standards. To minimize manufacturing defects, early detection and
problem resolution are critical.
ACME Manufacturing produces electronic components used in the
assembly of industrial robotic equipment. The components are
technologically sophisticated, and quality must be rigorously monitored to
ensure that specifications are met. Of course, inspection can be a time
consuming and costly activity. ACME production managers must determine
how much sampling and testing is needed to minimize costs and maximize
yields.
In the current sampling plan, one component from the production line
is randomly selected every 15 minutes. Each component is inspected and
tested for major and minor defects. Major defects, which affect component
performance, must be addressed immediately. Fortunately, major defects are
rare and are generally contained and corrected early in the process. Minor
defects, such as nicks and scratches, are those that affect the appearance of
a component but not its functionality. Monitoring minor defects to ensure the
rate doesnt increase is of particular concern to ACME management.
Exhibit 1 Defects Split by Day

N = 32 items
per day

DAY

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

sample
8:15AM
8:30
8:45
9:00
9:15
9:30
9:45
10:00
10:15
10:30
10:45
11:00
11:15
11:30
11:45
12:00PM
12:15
12:30
12:45
13:00
13:15
13:30
13:45
14:00
14:15
14:30
14:45
15:00
15:15
15:30
15:45
16:00PM

1
12
8
9
11
9
10
12
9
12
4
11
8
12
12
9
8
9
10
15
11
14
11
9
7
15
11
13
9
15
8
7
11

2
17
12
7
11
7
6
10
11
12
7
11
6
12
13
1
12
13
8
14
12
8
12
12
10
10
15
6
12
13
7
7
11

3
7
11
9
16
8
12
14
5
13
14
6
4
14
8
11
10
6
10
5
9
12
12
10
13
4
6
13
9
17
15
14
12

4
11
11
8
12
12
11
12
13
10
15
12
6
7
5
3
13
9
11
9
15
12
6
8
11
14
7
7
16
3
13
16
9

5
7
8
7
11
7
17
7
8
11
3
14
7
10
3
11
14
10
13
16
12
10
11
11
13
9
9
9
13
12
14
14
8

6
13
9
14
10
7
7
11
12
9
11
13
11
12
6
14
12
10
9
9
5
11
17
13
10
7
5
12
6
12
4
10
14

7
10
8
15
3
8
12
5
5
14
12
16
9
10
10
12
4
13
9
11
12
12
7
8
15
11
14
13
7
10
16
10
7

8
10
11
11
11
14
12
15
10
6
13
14
10
11
10
9
9
12
12
3
10
9
9
9
5
11
8
14
17
7
14
12
6

9
11
12
10
12
14
13
6
8
9
13
5
11
6
8
11
14
11
12
16
11
7
5
16
7
11
5
8
14
10
9
11
12

10
9
18
17
16
10
12
8
9
11
13
11
8
9
14
9
4
12
13
11
9
10
8
10
9
14
11
8
15
10
8
9
13

The Task
ACME currently inspects one part every 15 minutes during an eight
hour shift. Production managers have complained this sampling rate is too
high, which has driven up costs and decreased output. They suggest
implementing sampling plans involving fewer parts. In this case, we explore
the effectiveness of the current defect sampling plan, and several alternative
plans, in detecting changes in the occurrence of minor defects.

The Data
The data set contains ten days of data on minor defects. Each day, one
item is tested every fifteen minutes during an eight-hour shift. The variables
in the data set are:
Day
Day of the test: 1 10
Sample
Time of the day that sample was taken in military time
(e.g., 13:00 is 1pm)
Defects
Number of minor defects detected on the sampled item
Analysis
A visual examination of the data set is a good place to start. Exhibit 1
organizes the 15-minute data by day. The first thing we note is that the
production process is far from error-free. Thats not too surprising, since the
errors recorded here are minor ones.

Managerial Report
Prepare a managerial report that will help the manager decide on how to
minimize manufacturing defects while minimizing the inspection cost.
1. Assume that the given data can be treated with X number of a
sampled item that were found with a major defect (this means the
item has at least 10 defects) in any inspection schedule from the ten
days (N= 10) observation. Construct a binomial probability distribution
and sketch the graph.
2. Referring to Problem 1, suppose that the probability of having a major
defect in a sampled item is 31.25%, what is the probability that from
the ten days of observation,
a) All have a major defect. Which schedule satisfied this condition?
b) Less than 5 have a major defect. Which schedule satisfied this
condition?
c) More than 5 have a major defect. Which schedule satisfied this
condition?
3. Provide a summary of all descriptive statistics for the average number
of defects of sampled item(s) per day for each of the following
sampling schedules:
a) One sampled item every fifteen minutes, starting at 8:15AM
b) One sampled item every hour, starting at 9:00AM
c) Two sampled items per day, at 9:30AM and 14:30PM
d) One sampled item per day, at 9:30AM

4. What changes in the statistical measurements are significant for the

manager? Which of the four suggested schedules would be the basis
for decisions to meet the companys objective?
5. Provide your own recommendations for the best inspection schedules.