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.How much did EZ Wheels pay during the year to repair and or replace scooters under warranty? Select one:A. 12.4 millionB. 22.8 millionC. 76.0 million

Answer 1

B. 22.8 million

Step-by-step explanation:

Net sales = $1,900 million

Warranty liability incurred during the year = Net sales × Return percentage

= $1,900 million × 4%

Warranty liability incurred during the year = $76 million

Scooters repair or replacement during the year = Warranty liability incurred × Repair and replacement percentage

= $76 million × 30%

Scooters repair or replacement during the year = $22.8 million

Therefore, EZ Wheels pay $22.8 million during the year to repair and or replace scooters under warranty. That is, the correct option is B. 22.8 million.