At the beginning of 2009, Angel Corporation began offering a 2-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2009 were $180 million. Fifteen percent of the units sold were returned in 2009 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2009 income statement is:

Question

Quizplus · Accepted Answer

The warranty expense is calculated by taking the net sales under warranty and multiplying it by the expected warranty cost percentage: $180 million x 4% = $7.2 million. The cost of repairing or replacing units returned under warranty is not included in the warranty expense calculation.

At the Beginning of 2009, Angel Corporation Began Offering a 2-Year