Question

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year

Answer 1

To calculate the warranty liability, sum the costs of the repairs conducted this year ($320) and estimated for next year ($400) to report a warranty liability of $720 at the end of the current year.

Step-by-step explanation:

To calculate the warranty liability for the Pizza Shop at the end of the current year, we need to account for the cost of fixing ovens both this year and the estimated repairs for next year. There have been 4 ovens fixed this year at $80 each, totaling $320. Management estimates that 5 more will need repairs next year at the same cost of $80 each, which would be $400. To find the total warranty liability, you add the cost incurred this year to the estimated cost for next year.

The total warranty liability reported at the end of the current year would be the sum of the two amounts: $320 (this year's repairs) + $400 (estimated next year's repairs) = $720 in warranty liability.

Answer 2

Answer: $720

Explanation:

No. Of unit sold = 100

Rate of defective units = 4

Average Cost of fixing an oven=$80

2nd year estimate for defects = 5

Total defects = 9.

Pizza Shop report warranty liability at the end of the current year

=

Total estimated defective units * average warranty repair costs

= 9 x $80

= $720