Question

To increase sales, Cougar Co. offers a standard warranty plan to be implemented at the beginning of year 10. This warranty plan cannot be purchased separately by customers. Based on industry experience, estimates are that warranty costs will equal ________?

Answer 1

Cougar Co.'s estimated warranty costs based on industry experience would likely consider the mean maintenance cost of $150 as a reference, adjusting it upwards to cover all warranty services included in their standard plan.

Step-by-step explanation:

The question is concerned with the implementation of a warranty plan by Cougar Co. and estimating how much the warranty costs are likely to be based on industry experience. In the context of business, a warranty is a commitment from a seller to repair or replace a product within a certain time period without additional cost to the customer. A service contract, on the other hand, is an additional agreement that a customer can purchase, which also covers repairs and replacements, often after the original warranty has expired.

Considering that maintenance costs for a car during its first year follow an exponential distribution with a mean of $150, a firm like Cougar Co. would use this information as a reference when estimating their warranty costs. Since warranties are included in the sale and not sold separately, the estimated warranty cost might be somewhat higher than the mean maintenance cost to ensure that the company covers all potential maintenance issues that the warranty would entail.