Marin Company sells 4,000 units of its product in 2011 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 80 units for a total cost of $4,000. What amount should Marin Company report as Warranty Expense in its 2011 income statement?

Question

Quizplus · Accepted Answer

The expected warranty expense is calculated as 3% of 4,000 units, which is 120 units. The average repair cost is $50 per unit, so the expected warranty expense is 120 units * $50 = $6,000.

Marin Company Sells 4,000 Units of Its Product in 2011