A complete desktop computer costs $965. A replacement monitor costs $238, a replacement hard drive costs $260, a replacement outer case costs $145, labor to repair it costs $77, and shipping it to and from a repair center costs $41. A full warranty, which covers the entire cost of repairing the computer, is 35% of the purchase price. A limited warranty, which only covers internal parts and labor, costs 11% of the purchase price. If the computer tower is damaged, requiring a new hard drive, new case, labor, and shipping, which warranty will be the better deal, and by how much?

Question

a.
The limited warranty will end up costing the consumer $190.60 less.
b.
The limited warranty will end up costing the consumer $45.60 less.
c.
The full warranty will end up costing the consumer $317.10 less.
d.
The full warranty will end up costing the consumer $192.40 less.

Answer 1

To compare the costs of the full warranty and the limited warranty, we first need to determine the costs for each.

1. Costs without warranty:

   • Replacement hard drive: $260
   • Replacement outer case: $145
   • Labor: $77
   • Shipping: $41

   Total cost to repair = $260 + $145 + $77 + $41 = $523

2. Cost of the full warranty:

   • Full warranty cost = 35% of purchase price
   • Price of computer = $965
   • Full warranty cost = 0.35 × $965 = $337.75

3. Cost of the limited warranty:

   • Limited warranty cost = 11% of purchase price
   • Limited warranty cost = 0.11 × $965 = $106.15

4. Total costs associated with each warranty:

   • If you have the full warranty, the total cost incurred would be just the warranty cost:

     • Total cost with full warranty = $337.75

   • If you have the limited warranty, only the internal parts (hard drive and case), labor, and shipping are covered, so you will have to pay the following out of pocket:

     • Total cost with limited warranty = Cost of repair - (limited warranty covers) The limited warranty covers parts and labor (hard drive, case, and labor):

       • Covered by limited warranty = $260 + $145 + $77 = $482

     • Total cost with limited warranty = Limited warranty cost + out-of-pocket expenses

       • Total cost with limited warranty = $106.15 + ($523 - $482)
       • Total cost with limited warranty = $106.15 + $41 = $147.15

5. Now we compare the two total costs:

   • Total cost with full warranty = $337.75
   • Total cost with limited warranty = $147.15

6. Find the difference:

   • Difference = Total cost with full warranty - Total cost with limited warranty
   • Difference = $337.75 - $147.15 = $190.60

Thus, the limited warranty saves the consumer $190.60.

The correct answer is a. The limited warranty will end up costing the consumer $190.60 less.