A company sells computers at a selling price of $1,800 each. Each computer has a

Question

A company sells computers at a selling price of $1,800 each. Each computer has a 2 year warranty that covers replacement of defective parts. It is estimated that 7% of all computers sold will be returned under the warranty at an average cost of $170 each. During November, the company sold 40,000 computers, and 400 computers were serviced under the warranty during November at a total cost of $62,000. The balance in the Estimated Warranty Liability account at November 1 was $40,000. What is the company's warranty expense for the month of November?
rev: 07_10_2013_QC_32589

$62,000

$306,600

$40,000

$476,000

$680,000

Explanation / Answer

Answer;

Compnies warranty expense for the month of November:

d) $476,000

Calculation of Warranty expense :

= No. of computers sold * Estimated percentage of computers that can be returned under warranty * Average cost (Repair) per computer

= 40,000 * 7% * 170 = $476,000

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