A firm sold $100,000 worth of goods during 2014.The firm extends warranty coverage on these goods.Historically, warranty costs have averaged 2% of total sales.During 2014, the firm incurred $1,000 to service goods sold in 2013 and $200 to service goods sold in 2014.What is warranty expense for 2014?

Question

Quizplus · Accepted Answer

The warranty expense for 2014 is calculated as 2% of the total sales for that year, which is $100,000. Therefore, the warranty expense is $2,000. The costs incurred for servicing goods sold in previous years do not affect the warranty expense calculation for 2014.

A Firm Sold $100,000 Worth of Goods During 2014