es for servicing cars under warranty. The entity's experience with warranty claims is that 60% of all cars sold in a year have zero defect, 25% of all cars sold in a year have normal defect, and 15% of all cars sold in a year have significant defect. The cost of rectifying a "normal defect" in a car is P10,000. The cost of rectifying a "significant defect” in a car is P30,000. The entity sold 500 cars during the year. What is the expected value of the
es for servicing cars under warranty. The entity's experience with warranty claims is that 60% of all cars sold in a year have zero defect, 25% of all cars sold in a year have normal defect, and 15% of all cars sold in a year have significant defect. The cost of rectifying a "normal defect" in a car is P10,000. The cost of rectifying a "significant defect” in a car is P30,000. The entity sold 500 cars during the year. What is the expected value of the
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Toyo Company owns a car dealership that it uses for servicing cars under warranty. The entity's experience with warranty claims is that 60% of all cars sold in a year have zero defect, 25% of all cars sold in a year have normal defect, and 15% of all cars sold in a year have significant defect. The cost of rectifying a "normal defect" in a car is P10,000. The cost of rectifying a "significant defect” in a car is P30,000. The entity sold 500 cars during the year. What is the expected value of the provision for warranty for the current year?
a. 3,500,000
b. 1,750,000
c. 1,400,000
d. 4,000,000
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