During June, SoundHouse sold 800 portable CD players for $50 each. Each CD player cost SoundHouse $25 to purchase and carried a one-year warranty. If 10 percent typically need to be replaced over the warranty period, what amount should SoundHouse debit Product Warranty Expense for in June?

Question

Quizplus · Accepted Answer

The total revenue from selling 800 CD players for $50 each is 800 x $50 = $40,000.

The total cost of purchasing 800 CD players is 800 x $25 = $20,000.

Since 10% typically need to be replaced over the warranty period, this means that 10% of the 800 CD players sold, or 80 CD players, will incur warranty costs.

The total cost of replacing 80 CD players is 80 x $25 = $2,000. Therefore, SoundHouse should debit Product Warranty Expense for $2,000 in June.

Therefore, the correct answer is (C) $2,000.

During June, SoundHouse Sold 800 Portable CD Players for $50