Explain answer: A company sells leaf blowers for $150 each. Each unit has a 3 ye

Question

Explain answer:

A company sells leaf blowers for $150 each. Each unit has a 3 year warranty that covers replacement of defective parts. It is estimated that 6% of all leaf blowers sold will be returned under the warranty at an average cost of $15 each. During October, the company sold 300,000 leaf blowers. 600 leaf blowers were serviced under the warranty during October at a total cost of $30,000. The balance in the Estimated Warranty Liability account on October 1 was $15,000. What is the company's warranty expense for the month of October?

Explanation / Answer

Warranty Expenses are booked as per provision

Provision = 300000*6%*15 = $270,000

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