Clean-All Inc. sells washing machines with a 2 year warranty. Clean-All estimates that total warranty costs are 3% of sales. In the year 2019, Clean-All recorded total sales of washing machines of $700,000. The balance in the Estimated Liability for Warranties account was $38,200 on December 31, 2018, and $25,600 on December 31, 2019.
What must have been the actual cost of repairs (covered under warranty) for the year 2019?

Question

Quizplus · Accepted Answer

The estimated warranty cost for 2019 is 3% of $700,000, which is $21,000. The beginning balance was $38,200, and the ending balance was $25,600. Therefore, the actual cost of repairs is $38,200 + $21,000 - $25,600 = $33,600.