Warranty Cost Analysis

For products sold with warranty, the manufacturer incurs costs resulting from the servicing of failures occurring under warranty. These costs depend on several factors, the most important being the reliability of the product. For planning purposes, the manufacturer must estimate (a) the expected cost of warranty per unit sold and (b) the expected cost per unit time over the product life cycle. This must be done in the product development stage. This article deals with models that may be used to obtain these cost estimates for products sold with free-replacement and pro rata warranties. Keywords: warranty; reliability; cost analysis; cost models; free-replacement warranty; pro rata warranty