Question

In 2020, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturerâs defects. Based on industry experience, warranty costs were expected to approximate 5% of sales revenue. First-year sales of the heaters were $390,000. An evaluation of the companyâs claims experience in late 2021 indicated that actual claims were less than expectedâ4% of sales rather than 5%.

Assuming sales of the heater in 2021 were $450,000 and warranty epanditure in 2021 totaled $12,000, what is 2021 warranty expenses?

Answer 1

$18,000

Step-by-step explanation:

The computation of the warranty expense for the year 2021 is shown below:

Estimated warranty expense = Actual Sales × Actual claims percentage

= $450,000 × 4%

= $18,000

We simply multiplied the actual sales with the percentage of the actual claim so that the estimated warranty expense could come and the same is shown above