A company sells leaf blowers for $170 each. Each unit has a three-year warranty

Question

A company sells leaf blowers for $170 each. Each unit has a three-year warranty that covers replacement of defective parts. It is estimated that 4% of all leaf blowers sold will be returned under the warranty at an average cost of $30 each. During October, the company sold 400,000 leaf blowers; 800 leaf blowers were serviced under the warranty during October at a total cost of $25,000. The balance in the Estimated Warranty Liability account on October 1 was $12,500. What is the company's warranty expense for the month of October?

Explanation / Answer

Warranty expense = no. of units sold x % of warrantee x cost per unit

                                    = 400,000 x 4% x 30

                                    = 480,000

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