Backpack Co. was organized to sell a single product that carries a 45-day warranty againstdefects. Engineering estimates indicate that 2% of the units sold will prove defective andrequire an average repair cost of $60 per unit. During Backpack’s first month of operations,total sales were 900 units; by the end of the month, five defective units had been repaired.The liability for product warranties at month-end should bea. $1,380.b. $300.c. $1,080.d. $780.
Backpack Co. was organized to sell a single product that carries a 45-day warranty againstdefects. Engineering estimates indicate that 2% of the units sold will prove defective andrequire an average repair cost of $60 per unit. During Backpack’s first month of operations,total sales were 900 units; by the end of the month, five defective units had been repaired.The liability for product warranties at month-end should bea. $1,380.b. $300.c. $1,080.d. $780.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Backpack Co. was organized to sell a single product that carries a 45-day warranty against
defects. Engineering estimates indicate that 2% of the units sold will prove defective and
require an average repair cost of $60 per unit. During Backpack’s first month of operations,
total sales were 900 units; by the end of the month, five defective units had been repaired.
The liability for product warranties at month-end should be
a. $1,380.
b. $300.
c. $1,080.
d. $780.
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