Clearview Company manufactures and sells high-quality television sets. The most

Question

Clearview Company manufactures and sells high-quality television sets. The most popular line sells for $1,450 each and is accompanied by a three-year warranty to repair, free of charge, any defective unit. Average costs to repair each defective unit will be $85 for replacement parts and $70 for labor. Clearview estimates that warranty costs of $42,160 will be incurred during 2012. The company actually sold 1,600 television sets and incurred replacement part costs of $11,800 and labor costs of $18,100 during the year. The adjusted 2012 ending balance in the Estimated Liability for Warranties account is $34,100.

1. How many defective units from this year's sales does Clearview Company estimate will be returned for repair?

2. What percentage of sales does Clearview Company estimate will be returned for repair?

Explanation / Answer

1. How many defective units from this year's sales does Clearview Company estimate will be returned for repair?

Warranty cost pu = Lab+Part = 70+85=155

So Warranty units = 42160/155 = 272 units

So 272 units of Clearview Company estimate will be returned for repair

2. What percentage of sales does Clearview Company estimate will be returned for repair?

= 272/1600 = 17.00%

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