Case Study: Maintenance Contract Business decision making is something that mana

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Case Study: Maintenance Contract

Business decision making is something that management must to do on a daily basis. Jensen Tire & Auto is a family owned auto service company. In recent months, business has been slow so in an effort to reduce cost, the company is deciding on whether to purchase a maintenance contract for its new computer wheel alignment and balancing machine, which costs $5,000 per year, instead of maintaining their own machine. The owner feels that maintenance expense should be related to usage so he collected a random sample of 30 weeks of weekly usage (hours) and annual maintenance expense (in hundreds of dollars). For each week, the following variables were recorded:

Weekly usage (hours)
Annual Maintenance Expense ($100s)

However, he is unsure how to do the analysis. Knowing you are about to finish the course in business analytics, your manager recommended you to the owner and you are now appointed to do the analysis for the above sample information using the appropriate statistical method to determine whether Jensen Tire & Auto should purchase the maintenance contract by answering the following questions:

How many hours the company will have to use the machine per week if they were to buy the contract?

Weekly Usage Annual Maintenance hours Expense 17.0 22.0 28 37.0 47.0 30.5 22.5 39.0 51. 40 40.0 19.5 49.0 41.3 40.5 14.4 35.0 31 25 21 35.2 22 26.8 29 24.4 207 35.2 20 33.2 31 29.9

Explanation / Answer

The problem is to identify if its worth to put $ 5000 per year, or do own repairs according to the data geven

mean = 33.13*100 = 3313$

we comapare results of 5000 vs 3313 at 0.05 level

Z = (x-u)/s/sqrt(n)

= (50-33.13)*sqrt(30)/ 0.0438

= 10.21 >>> Z critcal value at 95% confidence interval i.e. 1.96

hence choosong the option for own maintenance is the best option

Now conducting regression ananlysis

COnclusion : We prefer using our own maintenace cost rule

Also the regression between hours and maintenace cost have a positive relation biut strength is moderateky

Weekly Usage (hours) Annual Maintenance Expense 13 17 10 22 20 30 28 37 32 47 17 30.5 24 32.5 31 39 40 51.5 38 40 25 19.5 24 49 20 31.7 22 41.3 12 40.5 11 37.4 25 14.4 19 35 25 34.1 21 35.2 22 26.8 29 24.4 17 29.7 12 35.2 10 20.1 28 37.3 10 33.2 16 31.1 30 41.6 13 29.9 mean=33.13 stdev=9.0438

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