A Company Has Produced a New Battery with an Estimated

question 43

Essay

A company has produced a new battery with an estimated mean lifetime of 60 hours. Management also believes that the standard deviation is 4.5 hours and that battery hours are normally distributed. To promote the new battery, the management has offered to refund some money if the battery fails to reach 50 hours before the battery needs to be recharged. Specifically, for batteries with a lifetime below 50 hours, the management will refund a customer $50 per hour short of 50 hours. a. For each battery sold, what is the expected cost of the promotion? b. What hours should the company set the promotion claim if it wants the expected cost to be $0.50?

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Definitions:

Fixed Costs

Costs that do not change with the volume of production or sales, such as rent, salaries, and insurance premiums, remaining constant regardless of the level of business activity.

Net Income

The total profit of a company after all expenses and taxes have been deducted from total revenue.

Required Sales

Required sales represent the amount of sales needed to achieve a specific objective, such as covering costs or reaching a profit target.

Operating Income

Refers to the profit earned from a firm's core business operations, excluding non-operating income and expenses.