Hunter Co. manufactures and sells hair dryers, which are fully warranted against defects for two years from date of sale. Based on experience, Hunter knows that 8 percent of the hair dryers will be returned under the warranty. Hunter estimates warranty costs of $120,000 related to year 1 sales.

How much of the $120,000 estimated warranty expense is fixed and determinable in year 1?

Assume that in December of year 2, Hunter Co. has 8,120 defective hair dryers that it received from customers who bought hair dryers in year 1. Hunter estimates that the cost of repairs and refunds for these 8,120 hairdryers will be $65,000 but does not actually perform the repair services or mail the refund checks until March of year 3.

How much of the original $120,000 estimated warranty expense is fixed and determinable in year 2?

When does economic performance occur for the $65,000 of estimated cost of repairs and refunds?