Question

EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During 2017, the company recorded net sales of $1,900 million. Historically, about 4% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 30% of retail value. Assume that at the start of the year EZ Wheels’ balance sheet included an accrued warranty liability of $16.3 million and at the end of the year, the accrued warranty liability balance was $12.4 million. What was EZ Wheels Corporation’s warranty expense for 2017? A. 12.4 million B. 22.8 million C. 76.0 million D. 26.7 million E. None of the above

Answer 1

B. 22.8 million

Step-by-step explanation:

The computation of the warranty expense is shown below:

= Net sales × repairing or returning percentage × sales return percentage

= $1,900 million × 30% × 4%

= $22.8 million

All other items values which are given in the question is not relevant. Hence, ignored it

We simply multiply the net sales with the given percentage reflecting the sales return percentage and the repairing percentage