The Furniture Fire
Project 2
The Furniture Fire Case
Presented by Group 1
Joey Oviedo, Sean Bannon, Abraham
In 1992, an accidental fire destroyed a furniture company’s warehouse in Tampa, FL. Upon these findings, the furniture company made a claim to their insurance company for demand of lost profits. In doing so, the furniture company submitted a profit calculation, or the GPF, of the burned inventory. There no sales receipts and the prices were unknown conveniently allowing the furniture company to use 253 random invoices pulled from the 3005 total invoices from 1991 to calculate the average GPF or Gross Profit Factor to determine their loss. These invoices were then separated into 2 groups. One consisting of 134 samples and the other one had 119 samples. The GPF calculated for the group with 134 samples was 50.5%. The GPF for the group with 119 samples was 51.0%. The average GPF for the two was 50.8%. The average GPF for this type of business is on somewhere close to 48%, the insurance company contested this while the furniture company maintained that the samples were chosen completely at random. The furniture company is attempting to claim a loss of $812,800 while the insurance company thinks the maximum value of this case is $768,000 using the Average GPF. The difference from the claim the furniture company filed and what the insurance company thinks the actual loss is $44,800 in favor of the furniture company, which would be insurance fraud if the furniture company were found guilty in court. A lawsuit was soon filed due to the discrepancies. During the discovery phase of the lawsuit, when both side submit all of the information they have to each other, the insurance company hired an independent CPA firm to calculate the GPF. To determine fraud, our group had to find the probability that a standard normal random variable exceeded the GPF samples given to us. We used the entire data set of 3,005 invoices as the population,
The Furniture Fire Case
Presented by Group 1
Joey Oviedo, Sean Bannon, Abraham
In 1992, an accidental fire destroyed a furniture company’s warehouse in Tampa, FL. Upon these findings, the furniture company made a claim to their insurance company for demand of lost profits. In doing so, the furniture company submitted a profit calculation, or the GPF, of the burned inventory. There no sales receipts and the prices were unknown conveniently allowing the furniture company to use 253 random invoices pulled from the 3005 total invoices from 1991 to calculate the average GPF or Gross Profit Factor to determine their loss. These invoices were then separated into 2 groups. One consisting of 134 samples and the other one had 119 samples. The GPF calculated for the group with 134 samples was 50.5%. The GPF for the group with 119 samples was 51.0%. The average GPF for the two was 50.8%. The average GPF for this type of business is on somewhere close to 48%, the insurance company contested this while the furniture company maintained that the samples were chosen completely at random. The furniture company is attempting to claim a loss of $812,800 while the insurance company thinks the maximum value of this case is $768,000 using the Average GPF. The difference from the claim the furniture company filed and what the insurance company thinks the actual loss is $44,800 in favor of the furniture company, which would be insurance fraud if the furniture company were found guilty in court. A lawsuit was soon filed due to the discrepancies. During the discovery phase of the lawsuit, when both side submit all of the information they have to each other, the insurance company hired an independent CPA firm to calculate the GPF. To determine fraud, our group had to find the probability that a standard normal random variable exceeded the GPF samples given to us. We used the entire data set of 3,005 invoices as the population,