Calm Co. provides warranty for its products. Experience shows that 10% of products sold require warranty repairs and that 70% of the warranty costs are expended in the year of sale and 30% in the following year. Half of the defective products require minor repairs that cost 20% of the sale price, while the other half require major repairs that cost 70% of the sale price: A 3% risk adjustment factor is considered appropriate reflect the uncertainties in the cash flow estimates. Sales of P4,000,000 were made evenly throughout 20x1. The outflows for repairs in 20x2 (for the products sold in 20x1) are expected to take place on June 30, 20x2. The appropriate discount factor is 0.95238. How much is the warranty provision at December 31, 20x1? a. 264,857 b. 176,571 c. 105,943 d.52,971
5. Calm Co. provides warranty for its products. Experience shows that 10% of products sold require warranty repairs and that 70% of the warranty costs are expended in the year of sale and 30% in the following year. Half of the defective products require minor repairs that cost 20% of the sale price, while the other half require major repairs that cost 70% of the sale price: A 3% risk adjustment factor is considered appropriate reflect the uncertainties in the
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