12 Warranty Costs Milford Company sells a motor that carries a 60-day unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, two percent of the units sold will require repair at an average cost of $125 per unit. The following data reflect Milford's recent experience: Units sold Known product failures from sales in: October November December October November December Dec. 31 Total 34,500 33,000 37,500 105,000 180 270 195 240 330 315 690 525 315 Calculate the estimated liability for product warranties at December 31. $ (Assume that warranty costs of known failures have already been reflected in the records.)

12 Warranty Costs Milford Company sells a motor that carries a 60-day unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, two percent of the units sold will require repair at an average cost of $125 per unit. The following data reflect Milford's recent experience: Units sold Known product failures from sales in: October November December October November December Dec. 31 Total 34,500 33,000 37,500 105,000 180 270 195 240 330 315 690 525 315 Calculate the estimated liability for product warranties at December 31. $ (Assume that warranty costs of known failures have already been reflected in the records.)

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter5: Activity-based Costing And Management

Section: Chapter Questions

Problem 13MCQ

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Problem 1 In 2020, Plumpton Company started selling new computer that carried a 2-year warranty against defects Plumpton sold P5,000,000 computers evenly throughout 2020. 50% of the sales are expected to be repaired in 2020 and the rest in 2021. The entity estimated that 80% of the products will have no defects. 5% will have major defects and 15% will have minor defects. If all products were to have major defects the total cost would be 2,000,000. But, if all products were to have minor defects the total repairs would only cost 500,000. The appropriate risk-adjustment factor should be 5% for the probability weighted estimated cash flows. How much is the warranty expense for 2020?
5. Calm Co. provides warranty for its products. Experience shows that 10% of products sold require warranty repairs and that 70% of the warranty costs are expended in the year of sale and 30% in the following year. Half of the defective products require minor repairs that cost 20% of the sale price, while the other half require major repairs that cost 70% of the sale price: A 3% risk adjustment factor is considered appropriate reflect the uncertainties in the cash flow estimates. Sales of P4,000,000 were made evenly throughout 20x1. The outflows for repairs in 20x2 (for the products sold in 20x1) are expected to take place on June 30, 20x2. The appropriate discount factor is 0.95238. How much is the warranty provision at December 31, 20x1? a. 264,857 b. 176,571 c. 105,943 d.52,971
5. Hansel Co is to make a payment of $8494. to a supplier. A 004% discount is available for paying after one month instead of the standard term of three months. What is the annual percentage cost of the discount? a) 057% b) 035% c) 016% d) 025%
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