During 2020, in its first year of operations, Praet Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 6% in the second year after sale. Sales were $3,600,000, $4,500,000 and $5,200,000 in 2020, 2021 and 2022, respectively. Actual warranty expenditures were $112,000, $273,000 and $302,000 in 2020, 2021 and 2022, respectively. How much is the total warranty expense recognized by Praet during 2020, 2021 and 2022?
Multiple Choice
$1,463,000
$89,000
$776,000
$725,000
| 2020 | 2021 | 2022 | Total | |
| Sales | 3,600,000 | 4,500,000 | 5,200,000 | |
| Warranty expense for current year sales | 3,600,000 x 2% = 72,000 | 4,500,000 x 2% = 90,000 | 5,200,000 x 2% = 104,000 | |
| Warranty expense for previous year sales | 0 | 3,600,000 x 3% = 108,000 | 4,500,000 x 3% = 135,000 | |
| Warranty expense for 2 year ago sales | 0 | 0 | 3,600,000 x 6% = 216,000 | |
| Total | 72,000 | 198,000 | 455,000 | $725,000 |
Total warranty expense recognized by Praet during 2020, 2021 and 2022 = $725,000
Fourth option is the correct option
kindly give a positive rating if you are satisfied with the solution. Please ask if you have any query related to the question, Thanks.
Get Answers For Free
Most questions answered within 1 hours.