Mariano Corporation sells 8 comma 000 units of inventory during the first year of operations for $ 400 each. Mariano provides a oneminusyear warranty on parts. It is estimated that 3 % of the units will be defective and that repair costs are estimated to be $ 40 per unit. In the year of sale, warranty contracts are honored on 80 units for a total cost of $ 3 comma 200. What amount will be reported as Estimated Warranty Liability at the end of the year?

Question

Business

Terry Wright

19 November, 04:22

Mariano Corporation sells 8 comma 000 units of inventory during the first year of operations for $ 400 each. Mariano provides a oneminusyear warranty on parts. It is estimated that 3 % of the units will be defective and that repair costs are estimated to be $ 40 per unit. In the year of sale, warranty contracts are honored on 80 units for a total cost of $ 3 comma 200. What amount will be reported as Estimated Warranty Liability at the end of the year?

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Answers (1)

Know the Answer?

Adolfo Vance · Answer 1

amount of Estimated Warranty is $6400

Explanation:

Given data

sells = 8,000 units

1st year = $400

defective rate = 3 %

repair costs = $40

honored = 80 units

total cost = $ 3200

to find out

amount will be reported as Estimated Warranty

solution

we will calculate here amount of Estimated Warranty that by formula given below

amount of Estimated Warranty = [ (units sold * Defective rate) - honored ] * repair cost

amount of Estimated Warranty = [ (8,000 * 3%) - 80 ] * 40

amount of Estimated Warranty = (240 - 80) * 40

amount of Estimated Warranty = 160 * 40

amount of Estimated Warranty = $6400