Dewey Auto Sales is considering to offer a special service contract that will co

Question

Dewey Auto Sales is considering to offer a special service contract that will cover the total cost of any service work required on leased vehicles. From past records, the company manager estimates that yearly service costs are almost normally distributed, with a mean of $150 and a standard deviation of $30.

a. If the company offers the contract to customers for a yearly charge of $200, what is the probability that one customer’s service cost exceeds the contract price of $200?

b. What is the company’s expected profit per service contract?

Not sure how this is done

Explanation / Answer

a) for z score =(X-mean)/std deviation

probability that one customer’s service cost exceeds the contract price of $200 =P(X>200)=1-P(X<200)

=1-P(Z<(200-150)/30)=1-P(Z<1.6667)=1-0.9522 =0.0478

b) company’s expected profit per service contract =Yearly charge -expected service cost =200-150 =$50

please revert for any clarification required,

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