You are a recent MBA graduate with a specialty in data analytics. This has led to an excellent new career, as it complements your undergraduate business degree and CPA designation. Your new position uses predictive analytics to estimate Compton Canada Corporation’s (CCC’s) warranty costs for its new Home Security System (HSS-12). The new product has only been on the market for 12 months, and it comes with a 24-month warranty. Estimating the full cost of warranty repairs is a bit of a challenge.

You have collected the following information regarding the first 100 CCC customers who purchased HSS-12, all of whom have had it installed for 12 months: 

1. Customer survey feedback rating the new HSS-12 product, which in the past helped to predict warranty needs for CCC’s older home security systems 

2. Costs of repairs to date for HSS-12 (the average repair cost per customer for the first 12 months)

3. Industry trend data for repair costs 

4. CCC repair technicians’ projections of estimated repair costs for the second year of the warranty 

5. Customer location information, which is correlated with the reliability of the HSS products; for example, performance differs based on humidity levels, average temperature, and regional crime statistics 

You have been asked to do the following:

a. Briefly describe three challenges of using big data. See the Data Analytics and Accounting module in the course resources for background information.

b. Use the information provided to create a warranty cost prediction model.

c. Using the model you created in part (b), calculate an estimate of the required provision for the second year of the warranty for HSS-12.

d. Briefly summarize the limitations of your warranty cost prediction model.

Instructions

Go to Wiley’s course resources for additional instructions and materials to complete this question.