Marin Company sells 9,000 units of its product in 2021 for $500 each.The selling price includes a one-year warranty on parts.It is expected that 3% of the units will 1.What amount should Marin Company report as Warranty Expense in its 2021 income statement?

Question

Quizplus · Accepted Answer

To calculate the warranty expense, we need to first estimate the number of units that will require warranty repairs. We are told that 3% of units will require warranty repairs, so the number of units that will require repairs is:

0.03 x 9,000 = 270

The cost of each repair is not given, so we cannot calculate the total expected cost of repairs. However, we can calculate the expected warranty expenses based on the cost of the product.

The selling price of $500 includes the cost of the product and the cost of the warranty. To calculate the cost of the product, we need to subtract the cost of the warranty from the selling price:

$500 - $0 = $500

Therefore, the cost of each product is $500. To calculate the expected warranty expenses, we can multiply the number of units that will require repairs by the cost of each unit:

270 x $500 = $135,000

Therefore, Marin Company should report $13,500 as Warranty Expense in its 2021 income statement.

Marin Company Sells 9,000 Units of Its Product in 2021