Milford Company sells a motor that carries a 3-month unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, three percent of the units sold will require repair at an average cost of $60 per unit. The following data reflect Milford’s recent experience: October November December Dec.31 Total Units sold 23,000 22,000 25,000 70,000 Known product failures from sales in: October 120 180 160 460 November 130 220 350 December 210 210 Calculate and prepare a journal entry to record, the estimated liability for product warranties at December 31. Assume that warranty costs of known failures have already been reflected in the records.
E10-7A Warranty Costs
Milford Company sells a motor that carries a 3-month unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, three percent of the units sold will require repair at an average cost of $60 per unit. The following data reflect Milford’s recent experience:
October November December Dec.31 Total
Units sold 23,000 22,000 25,000 70,000
Known product failures from sales in:
October 120 180 160 460
November 130 220 350
December 210 210
Calculate and prepare a journal entry to record, the estimated liability for product warranties at December 31. Assume that warranty costs of known failures have already been reflected in the records.
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