In 2015, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturers defects. Based on industry experience, warranty costs were expected to approximate 6% of sales revenue. First-year sales of the heaters were $240,000. An evaluation of the companys claims experience in late 2016 indicated that actual claims were less than expected5% of sales rather than 6%.

Assuming sales of the heaters in 2016 were $290,000 and warranty expenditures in 2016 totaled $12,500, what is the 2016 warranty expense?