Question

At the beginning of 2018, ABC began offering a 1-year warranty on its products. The warranty program was expected to cost ABC 4% of net sales. Net sales made under warranty in 2018 were $180 milion. Five percent of the units sold were returned in 2018 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on ABC's 2018 income statement is

A) $27.0 million.
D) S5.3 million.
B) S9.0 million.
C) S7.2 million.

Answer 1

$7.2 million

Step-by-step explanation:

Calculation for the amount of warranty expense on Angel's 2016 income statement

Using this formula

Warranty expense =Net sales ×Expected percentage of net sales

Let plug in the formula

Warranty expense=$180 million×4%

Warranty expense=$7.2 million

Therefore the amount of warranty expense on Angel's 2016 income statement will be $7.2 million