During 2013, Great Adventures sold 150 dune buggies for $4,000 each. The dune buggies carry a 5-year warranty for defects. Estimates suggest that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $14,000, and $20,000 in claims was actually incurred during 2013 to honor the warranty. What was the warranty expense for 2013?

Question

Quizplus · Accepted Answer

The warranty expense for 2013 can be calculated as follows:

Warranty expense = (Estimated warranty liability at beginning of year) + (Warranty claims incurred during the year) - (Expected repair costs)

Expected repair costs = (Total selling price of dune buggies sold) x (Estimated repair costs as a percentage)

Expected repair costs = ($4,000 x 150) x 0.04 = $24,000

Warranty expense = ($14,000 + $20,000) - $24,000 = $10,000

Therefore, the correct answer is D) $24,000.

During 2013, Great Adventures Sold 150 Dune Buggies for $4,000