Determining the Most Profitable Process Level for a Production Process under Different Sales Conditions

Abstract

The choice of quality level for a production process has economic consequences, the size of which depends on both internal and external conditions. In this paper we derive and study the optimal process level and the optimal expected net income for a production process with regard to both internal and external conditions. As internal conditions we consider production costs and process variability, and as external conditions we consider prices and control plan. In this study the cost and price functions are assumed to be linear, the quality characteristic is normally distributed with known process variability, and all items are inspected.