FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Calculate the amount of warranty expense that should have been recognized in 2023

 
 
 
A manufacturing company sells motorcycles with a five-year warranty against manufacturer's defects. The manufacturer expects that
0% of the motorcycles sold will prove to be defective in the first year after they are sold, 1% will prove to be defective in the second
year, 2% will prove to be defective in the third and fourth years, and 3% will prove to be defective in the fifth year. The average cost to
repair or replace a defective unit under the warranty is expected to be $40.
The company's sales and warranty costs incurred in its first five years were as follows:
2020
2021
2022
2023
2024
Units Sold
5,880
7,560
8,400
10,080
5,040
Actual Costs of Repairs and
Replacements under the Warranty Plan
$420
$13,440
$25,200
$20,200
$10,080
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Transcribed Image Text:A manufacturing company sells motorcycles with a five-year warranty against manufacturer's defects. The manufacturer expects that 0% of the motorcycles sold will prove to be defective in the first year after they are sold, 1% will prove to be defective in the second year, 2% will prove to be defective in the third and fourth years, and 3% will prove to be defective in the fifth year. The average cost to repair or replace a defective unit under the warranty is expected to be $40. The company's sales and warranty costs incurred in its first five years were as follows: 2020 2021 2022 2023 2024 Units Sold 5,880 7,560 8,400 10,080 5,040 Actual Costs of Repairs and Replacements under the Warranty Plan $420 $13,440 $25,200 $20,200 $10,080
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