Mariano Corporation sells 10,000 units of inventory during the first year of operations for $500 each.The selling price includes a one-year warranty on parts.It is estimated that 3% of the units will be defective and that repair costs are estimated to be $50 per unit.In the year of sale,warranty contracts are honored on 80 units for a total cost of $4,000.What amount will be reported as Estimated Warranty Liability at the end of the year?
A)$4,000
B)$6,000
C)$11,000
D)$15,000

Question

Quizplus · Accepted Answer

The estimated warranty liability is the cost of repairing defects for units that have not yet been repaired, but are expected to be repaired in the future under warranty.

Total warranty liability can be calculated using the following formula:

Total warranty liability = (number of defective units sold x cost of repair per unit) - (cost of repairs already made under warranty)

Number of defective units sold = 10,000 x 3% = 300

Cost of repair per unit = $50

Cost of repairs already made under warranty = $4,000

Total warranty liability = (300 x $50) - $4,000 = $11,000

Therefore, the correct answer is C.

Mariano Corporation Sells 10,000 Units of Inventory During the First