Strikers,Inc.sells soccer goals to customers over the Internet.History has shown that 2% of Strikers' goals will need repair under the warranty program.For the year,Strikers has sold 4,000 goals and 45 have been repaired.If the estimated cost to repair a goal is $200,what would be the warranty liability at the end of the year?
A)$0.
B)$16,000.
C)$7,000.

Question

Quizplus · Accepted Answer

The warranty liability is the estimated cost of repairing the goals that have not been repaired yet. 
Number of goals sold: 4,000 
Percentage of goals that need repair: 2% = 0.02 
Number of goals that need repair: 4,000 x 0.02 = 80 
Number of goals that have been repaired: 45 
Number of goals that need repair but have not been repaired yet: 80 - 45 = 35 
Estimated cost to repair each goal: $200 
Warranty liability = 35 x $200 = $7,000. 
Therefore, the correct answer is C.