Question
How do I calculate the estimated liability for product warranties at Dec 31. from this data below? Milford Company sells a motor that carries a
How do I calculate the estimated liability for product warranties at Dec 31. from this data below?
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 $100 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.)
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