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

Warranty expense is calculated based on the historical average percentage of total sales. Therefore, the expected warranty expense for 2014 would be 2% of $100,000 or $2,000. The $1,000 cost incurred to service goods sold in 2013 and $200 to service goods sold in 2014 are not included in the calculation of warranty expense for 2014. Therefore, the total warranty expense for 2014 would be $2,000. Thus, the correct answer is choice C.

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