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Calculate the amount of warranty expense that should have been recognized in 2023

Calculate the amount of warranty expense that should have been recognized in 2023

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calculate the amount of warranty expense that should have been recognized in 2023

 
 
 
A manufacturing company sells motorcycles with a five-year warranty against manufacturer's defects. The manufacturer expects that 0% of the motorcycles sold will prove to be defective in the first year after they are sold, 1% will prove to be defective in the second year, 2% will prove to be defective in the third and fourth years, and 3% will prove to be defective in the fifth year. The average cost to repair or replace a defective unit under the warranty is expected to be $40. The company's sales and warranty costs incurred in its first five years were as follows: 2020 2021 2022 2023 2024 Units Sold 5,880 7,560 8,400 10,080 5,040 Actual Costs of Repairs and Replacements under the Warranty Plan $420 $13,440 $25,200 $20,200 $10,080
Transcribed Image Text:A manufacturing company sells motorcycles with a five-year warranty against manufacturer's defects. The manufacturer expects that 0% of the motorcycles sold will prove to be defective in the first year after they are sold, 1% will prove to be defective in the second year, 2% will prove to be defective in the third and fourth years, and 3% will prove to be defective in the fifth year. The average cost to repair or replace a defective unit under the warranty is expected to be $40. The company's sales and warranty costs incurred in its first five years were as follows: 2020 2021 2022 2023 2024 Units Sold 5,880 7,560 8,400 10,080 5,040 Actual Costs of Repairs and Replacements under the Warranty Plan $420 $13,440 $25,200 $20,200 $10,080
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