Question

Backpack Co. was organized to sell a single product that carries a​ 45-day warranty against defects. Engineering estimates indicate that 2​% of the units sold will prove defective and require an average repair cost of $ 60 per unit. During Backpack​'s first month of​ operations, total sales were 900 ​units; by the end of the​ month, five defective units had been repaired. The liability for product warranties at​ month-end should be

Answer 1

Total Number of units sold					900
Estimated units on which warranty required					18
Estimated cost of warranty per unit					60
Estimated waranty liability and Warranty expense for the year					1080
Less: Actual cost incurred (5*60)					300
Ending balance of Estimated Warranty liability					780
Answer is $ 780.