Computer Inc. sells equipment with a 3-year warranty. Prior experience indicates that costs for warranty repairs average 3% in the first year, 2% in the second year and 1% in the third year. In 2013, Computer had sales of $800,000. It paid $20,000 for materials and labour to make warranty-related repairs in 2013. What amount will be recorded as warranty expense in 2013?
A)$16,000
B)$24,000
C)$28,000
D)$48,000

Question

Quizplus · Accepted Answer

The warranty expense is calculated as 6% of the sales ($800,000), which is $48,000.