Star Company has recently launched a new model of consumer car. Its cars are sold with a three-year warranty for manufacturing defects. Past experience of similar models indicates that about 10% of the cars sold are with some defects, of which 4% are minor defects, 3% are normal defects and 3% are major defects. For the year ended December 31, 2011, the company sold 10,000 units of the new model. The following information relates to the estimate of costs of defects associated with the new model: Major defects P7,000 5,000 2,000 Cost of repair/unit High Probability 30% Minor defects Normal defects P1,500 P4,000 Medium 1,200 3,000 1,500 60% Low 10% 1,000 What amount of provision should the company recognize for the year ended December 31, 2011? c. P1,590,000 d. P3,043,000 a. None b. P1,445,000

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