Question

Butcher Co. sold 10,000 toys in Year4 for $20 each. The company expects that 5% of the toys will be returned under warranty for a refund of the sales price in the 2-year warranty period. There were $6,000 of warranty obligations paid in cash during Year4. What is Butcher's warranty expense for Year4?

Answer 1

Butcher's warranty expense for Year 4 is $10,000

Step-by-step explanation:

Since in the question, it is given that 5% of the toys are returned, and the warranty expenses should be charged on the replacement service or repair service. Even, the question has said the same.

So, the warranty expense computation is shown below:

= Sale units of toys × selling price per toy × returned percentage

= 10,000 toys × $20 × 5%

= $10,000

The warranty obligation part is irrelevant. Thus, we don't consider in the computation part. Therefore, it is ignored.

Hence, Butcher's warranty expense for Year 4 is $10,000