Cutters sells razors at $75 each. The razors have a 90 day warranty that require

Question

Cutters sells razors at $75 each. The razors have a 90 day warranty that requires the company to replace any nonworking razor. The Companys cost per razor is $20. The manufacturer estimates an 8% of sales dollars failure rate. In a recent month 150 razors were sold for $11,250 cash. 13 razors were replaced during the month and the beginning balance in the warranty liability account was a credit of $1,000. (A) What is the warranty expense for this month and (B) What is the month end balance in the liability account?

(A) ____________ (B) _____________

Explanation / Answer

a. warranty expense= 13*20=260

b. month end balance =1000-260=740

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