At the beginning of 2013, Angel Corporation began offering a two-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2013 were $180 million. Fifteen percent of the units sold were returned in 2013 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2013 income statement is:
A)$5.3 million.
B)$7.2 million.
C)$10.6 million.
D)$27.0 million.

Question

Quizplus · Accepted Answer

The warranty expense is calculated as 4% of net sales, which is $180 million. Therefore, the warranty expense is 0.04 * $180 million = $7.2 million.

At the Beginning of 2013, Angel Corporation Began Offering a Two-Year