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A manufacturing company sells motorcycles with a five-year warranty against manufacturer's defects. The manufacturer expects that 0% of the motorcycles sold will prove to
A manufacturing company sells motorcycles with a five-year warranty against manufacturer's defects. The manufacturer expects that 0% of the motorcycles sold will prove to be defective in the first year after they are sold, 1% will prove to be defective in the second year, 2% will prove to be defective in the third and fourth years, and 3% will prove to be defective in the fifth year. The average cost to repair or replace a defective unit under the warranty is expected to be $40. The company's sales and warranty costs incurred in its first five years were as follows: Units Sold 2016 6,400 2017 8,000 2018 9,700 2019 13,000 2020 5,100 Actual Costs of Repairs and Replacements under the Warranty Plan $800 $16,400 $30,300 $23,800 $12,900 (a) Calculate the amount that should have appeared in the estimated Warranty Provision account at the end of 2018. Assume the balance in the Warranty ( Provision account was zero at the beginning of 2016. Estimated warranty provision account, Dec. 31, 2018
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