Question

If Al Maha Company decided to provide a three-year warranty against manufacturer's defects. Based on past experience with similar products, warranty costs are expected to be approximately 3% of sales during the first year, 2% of sales during the second year and 1% sales during the third year. On December 31, 2019, the company reported sales to be QAR 1,900,000. How much the amount of "Warranty expense" that Al Maha Company should report? A. QAR 76,000. B. QAR 57,000. C. QAR 95,000. D. QAR 114,000.

Answer 1

D. QAR 114,000

Step-by-step explanation:

Calculation for How much the amount of "Warranty expense" that Al Maha Company should report

Using this formula

Warranty expense=[(First year expected warranty costs*Sales)+(Second year expected warranty costs*Sales)+(Third year expected warranty costs*Sales)]

Let plug in the formula

Warranty expense=[(3% 1,900,000)+(2%* 1,900,000)+(1%*1,900,000)]

Warranty expense=57,000+38,000+19,000

Warranty expense=QAR 114,000

Therefore the amount of "Warranty expense" that Al Maha Company should report will be QAR 114,000.