A Tire Manufacturing Company Is Reviewing Its Warranty for Their

question 102

Essay

A tire manufacturing company is reviewing its warranty for their rainmaker tire. The warranty is for 40,000 miles. The distribution of tire wear is normally distributed with a population standard deviation of 15,000 miles. The tire company believes that the tire actually lasts more than 40,000 miles. A sample of 49 tires revealed that the mean number of miles is 45,000 miles. Test the hypothesis with a 0.05 significance level. What is our decision?

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (direct labor, direct materials, and variable manufacturing overhead) in product costs.

Cost-Volume-Profit Analysis

An accounting technique used to determine how changes in costs and sales volume affect a company's operating income and net income.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and overhead) in the cost of a product.

Common Fixed Costs

Costs that are shared by multiple segments or products of a company and do not change with the volume of production for any single product.