ABC Ltd sells washing machines. Washing machines are sold with a six-month warranty that covers the costs of repairing any manufacturing defects that become apparent within six months of purchase. If minor defects are detected in all products sold, repair costs of $20,000,000 would result. If major defects are detected in all products sold, repair costs of $8,000,000 would result.

Based on past experience and future expectations, ABC Ltd is able to estimate that 90 per cent of all machines sold will have no defects, 7 per cent goods sold will have minor defects, and 3 per cent will he major defects.

Required

• Calculate the expected repair cost. (2 marks)
• Prepare a journal entry to record the expected repair cost. (2 marks)