Video-Technical, Inc. was organized to sell a single product for $600 per unit,

Question

Video-Technical, Inc. was organized to sell a single product for $600 per unit, including a 60-day warranty against defects. Engineering estimates indicate that 5% of the units sold will prove defective and require an average repair cost of $50 per unit. During the first month of operations, total sales were $192,000; by the end of the month, nine units had been reported defective and repaired. The accrued liability for product warranties at month-end should be:
Answer
A. $ 800
B. $ 350
C. $ 450
D. $1,150
E. None of the above

Explanation / Answer

192,000/600= 320 units were sold 320*.05 *50=$800 estimated repair costs credited to accrued warranty 9 were repaired so 9*50=450 costs charged to accrued warranty 800-450= 350 (B) left in accrued warranty

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