Betancourt Company sells automatic can openers under a 75-day warranty for defec

Question

Betancourt Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experience, Betancourt estimates that 4% of the units sold will become defective during the warranty period. Management estimates that the average cost of replacing or repairing a defective unit is $25. The units sold and units defective that occurred during the last 2 months of 2017 are as follows.

Month

Units Sold

Units Defective Prior to December 31

403

please not only give the correct answer but also explain how it was obtained

Thanks

Month

Units Sold

Units Defective Prior to December 31

403

Explanation / Answer

NOTE:Kindly post the complete question.

I am hereby answering the estimated warranty liability at Dec 31 for the units sold in November and December.

Units sold for both november and december = 30,200+32,200 = 62,400

Defective Percentage Estimated = 4%

Estimated Defective units = 62,400*4% = 2,496

Less: Defective units prior to Dec 31

Nov 604

Dec 403   = 1,007

Estimated number of units on which = 1,489

warranty is unclaimed

Average replacement or repair cost = $25

Estimated warranty liability at Dec 31,2017 = $25*1,489 =$37,225

Therefore, estimated warranty liability at December 31, 2017 will be $37,225.

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