In the current year, a company sells 1,000 units of a product for $100 each. Each product is sold with a one-year warranty. It is estimated that warranty costs will be 10% of the cost of the product. Historically, 60% of the warranty repairs are completed in the year of sale and 40% of the warranty repairs are completed in the year after the sale. What is the correct amount of warranty expense for the current year?
A) $10,000
B) $ 6,000
C) $ 4,000
D) $12,000

Question

Quizplus · Accepted Answer

The warranty expense for the current year is calculated as 10% of the total sales revenue, which is $100,000 (1,000 units x $100). Therefore, the warranty expense is $10,000.

In the Current Year, a Company Sells 1,000 Units of a Product