Warranties Clearview Company manufactures and sells high-quality television sets. The most popular line sells for $1,000 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 $90 for replacement parts and $60 for labor. Clearview estimates that warranty costs of $12,600 will be incurred during 2010. The company actually sold 600 television sets and incurred replacement part costs of $3,600 and labor costs of $5,400 during the year. The adjusted 2010 ending balance in the Estimated Liability for Warranties account is $10,200.

Required 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?

3. What steps should Clearview take if actual warranty costs incurred during 2011 are signifi cantly higher than the estimated liability recorded at the end of 2010?

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