A two-stage screening procedure is developed for a situation where an
item is sold in one of two markets or scrapped. The item's selling pri
ce and product specifications are different in both markets. In the fi
rst stage of the procedure, each item is inspected on a surrogate vari
able that is correlated with the performance variable of interest. If
a decision is not reached at this point, the item is subjected to the
second-stage of the procedure where it is inspected on the performance
variable, and a classification decision is made. A loss in revenue is
incurred by the producer when an item that meets the specifications o
f the higher-price market is sold in the lower-price market. The produ
cer also sustains a cost when an item that does not conform to the pro
duct specifications of a market is sold in that market. The economic f
actors considered in the model, therefore, are the selling prices and
the cost consequences resulting from decision errors. The optimal scre
ening specification limits for known-parameter and unknown-parameters
situations are derived by maximizing the expected profit per item.