Present Worth of Service Cost for Consumer Product Warranty

Under a warranty service contract, the manufacturer of a consumer product agrees to repair and maintain the product over a certain stated period of time for a fee from the customer. The manufacturer offering such a service contract is faced with several policy design and planning decisions. Mathematical models of product failures and of future repair costs are basic to the formulation of these decision problems. We assume Weibull time-to-failure distribution for analytic amenability and reasonable realism A repair returns the product to the average condition for a working unit of its age (bad as old). Simple stochastic models of sequences of failures and their costs are developed. Expressions are obtained for the s-expectation of the present worth of the future repair costs.