Exhibit 13-4 During 2010, the Alexandra Company began selling a new type of machine that carries a two-year warranty against all defects.Based on past industry and company experience, estimated warranty costs should total $2, 000 per machine sold.During 2010, sales and actual warranty expenditures were $2, 000, 000 (40 machines)and $22, 000, respectively.
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Refer to Exhibit 13-4.What amount should Alexandra report as its warranty expense for 2010?

Question

Quizplus · Accepted Answer

The warranty expense for 2010 should be based on the estimated warranty costs per machine sold, which is $2,000 per machine. Since 40 machines were sold, the total estimated warranty expense is 40 machines * $2,000/machine = $80,000. This amount reflects the expected future costs associated with warranty claims for the machines sold in 2010, regardless of the actual warranty expenditures during the year.

Exhibit 13-4 During 2010, the Alexandra Company Began Selling a New