Question
Wildhorse Machinery Corporation, a private company following ASPE sold manufacturing equipment for $2,200 each. Each machine carried with it a 2-year warranty against manufacturing defects.
Wildhorse Machinery Corporation, a private company following ASPE sold manufacturing equipment for $2,200 each. Each machine carried with it a 2-year warranty against manufacturing defects. From experience, Wildhorse Machinery Corporation determined that each machine sold would average $270 in replacement parts. In 2020, the company sold 1,000 machines. Also in 2020, the company incurred $125,000 in total repair costs (the cost of replacement parts from inventory). Wildhorse Machinery Corporation also sold an extended warranty for its machines. For $500, customers could purchase an extended warranty that extended the warranty on the machine for an additional 2 years. 800 of the customers that bought machines also purchased the extended warranty. Assume the revenue is earned evenly over the two-year contract.
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