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 Milfords recent experience:

	October	November	December	Dec. 31 Total
Units sold	34,500	33,000	37,500	105,000
Known product failures from sales in:
October	180	270	240	690
November		195	330	525
December			315	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.)