document: Warranty reserves for nonstationary sales processes Estimation of warranty costs , in the event of product failure within the warranty period , is of importance to the manufacturer . Costs associated with replacement or repair of the product are usually drawn from a warranty reserve fund created by the manufacturer . Considering a stochastic sales process , first and second moments -LRB- and thereby the variance -RRB- are derived for the manufacturer 's total discounted warranty cost of a single sale for single-component items under four different warranty policies from a manufacturer 's point of view . These servicing strategies represent a renewable free-replacement , nonrenewable free-replacement , renewable pro-rata , and a nonrenewable minimal-repair warranty plans . The results are extended to determine the mean and variance of total discounted warranty costs for the total sales over the life cycle of the product . Furthermore , using a normal approximation , warranty reserves necessary for a certain protection level , so that reserves are not completely depleted , are found . Results and their managerial implications are studied through an extensive example
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