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    Managing Partner of Karnataka Electronics has recently taken up the dealership of ASHA Clear-Tone transistor radios. He accepted the dealership mainly because of the warranty and replacement policy of ASHA. But, testing the entire shipment of 100 radios immediately on the spot is really a tedious process. If he accepts the shipment and later finds that some of the radios are defective, ASHA will replace only up to 10 per cent of the shipment.

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    Managing Partner of Karnataka Electronics has recently taken up the dealership of ASHA Clear-Tone transistor radios. He accepted the dealership mainly because of the warranty and replacement policy of ASHA. But, testing the entire shipment of 100 radios immediately on the spot is really a tedious process. If he accepts the shipment and later finds that some of the radios are defective, ASHA will replace only up to 10 per cent of the shipment.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    48 views1 page

    Cleartone Radios

    Uploaded by

    sandipghosh123
    Managing Partner of Karnataka Electronics has recently taken up the dealership of ASHA Clear-Tone transistor radios. He accepted the dealership mainly because of the warranty and replacement policy of ASHA. But, testing the entire shipment of 100 radios immediately on the spot is really a tedious process. If he accepts the shipment and later finds that some of the radios are defective, ASHA will replace only up to 10 per cent of the shipment.

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    Clear-Tone Radios1

    Shankar Sinha, Managing Partner of Karnataka Electronics has recently taken up the dealership of ASHA Clear-Tone transistor radios. He accepted the dealership mainly because of the warranty and replacement policy of ASHA. The agreement calls for each order to be for 100 radios. Shankar can test all the 100 radios on the spot and return the defective ones immediately and those will be replaced. But, Shankar's experience had been that most of the customers would want the sealed box to be opened in front of them. They are concerned when the box is already opened and usually insist on a factory-sealed box. In addition, testing the entire shipment of 100 radios immediately on the spot is really a tedious process. On the other hand, he can select a random sample and test only those that are selected. Based on the sample, he can decide to either accept or reject the entire shipment. If he accepts the shipment and later finds that some of the radios are defective, ASHA will replace only up to 10 per cent of the shipment. The cost associated with any more defective radios will have to be borne by Shankar. If he rejects the shipment, all the 100 radios are immediately tested by ASHA. If it is found that the shipment contains more than 10 per cent defective radios, ASHA will replace all the defective radios immediately. If the number of defective radios is less than 10 per cent, ASHA will return the shipment back to Shankar as it is and in addition, Shankar will have to pay the testing charges, transportation costs, and additional penalty for the man hours spent on testing. Shankar requires to open at least 3 boxes, any way, for the purpose of display and demonstration to potential customers. Hence he decided that his sample size should be three. He also decided that if all the three radios in the sample turn out to be defective, he has every reason to reject the entire shipment. On the other hand, if none of the three are defective, he is sure that he has no reason not to accept the shipment. But, what should he do when he finds exactly one radio defective? or exactly two radios defective?

    V. Nagadevara, Indian Institute of Management Bangalore

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