Marin Company sells 9,000 units of its product in 2014 for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $50 per unit. In the year of sale, warranty contracts are honored on 180 units for a total cost of $9,000. What amount should Marin Company report as Warranty Expense in its 2014 income statement?
A) $13,500.
B) $9,000.
C) $4,500.
D) $67,500.

Question

Quizplus · Accepted Answer

The expected warranty expense is calculated as 3% of 9,000 units, which is 270 units. At $50 per unit, the total expected warranty expense is $13,500.

Marin Company Sells 9,000 Units of Its Product in 2014