Chapter 8, Problem 9QC

Backpack Co. was organized to sell a single product that carries a 45-day warranty against defects. Engineering estimates indicate that 2% of the units sold will prove defective and require an average repair cost of $60 per unit. During Backpack’s first month of operations, total sales were 900 units: by the end of the month, five defective units had been repaired. The liability for product warranties at month-end should be

  a.    $1,380.

  b.    $300.

  c.    $1,080.

  d.    $780.