Question

An entity offers a 2 year warranty program on all the products is sells. They estimate that warranty costs will equal 3% of s

Please show all steps so I can fully understand how to solve. Thank you

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Answer #1

Warranty expense for the 1st year =

Sales in 1st year = $2909041

Warranty provision in 1st year = 3 % of total sales in 1st year

Warranty expense provision = $2909041 × 3%

= $87271

Since, it is already given in the question that warranty costs have been incurred amounting to $34227. So, this is actual expense and $87271 is a provision created.

Therefore, the correct answer is option (a), $34227.

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