Stahman, Inc., estimates its hidden external failure costs using the Taguchi loss function. Stahlman produces plastic sheets that vary in thickness and grade. For one of its large-volume products, it was determined that k ¼ $30,000 and T ¼ 0.28 inches in diameter. A sample of four units produced the following values:
Unit No. Actual Diameter (y)
1 ... 0.28
2 ... 0.30
3 ... 0.26
4 ... 0.27
1. Calculate the average loss per unit.
2. Assuming that 100,000 units were produced, what is the total hidden cost?
3. Assume that the multiplier for Stahman’s hidden external failure costs is six. What are the measured external costs? Explain the difference between measured costs and hidden costs.