Quiz2 Fall 2008 solutions

Quiz2 Fall 2008 solutions - Question 1 XYZ Inc provides the...

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XYZ Inc provides the following information Year Units Sold Actual Repair and Replacement Cost under Warranty Plan 2006 14,000 $12,000 2007 16,000 $38,000 2008 20,000 $70,000 2009 22,000 $120,000 XYZ sells its products with a four year warranty. It estimates the following defect rates as a percent of annual sales. Year of Sale 1% Second Year 2% Third Year 3% Fourth Year 4% The average cost to repair a defective unit is expected to be $80. Required. A. Compute the amount that should have appeared in the warranty obligation account at the end of 2006. B. Compute the amount of warranty expense that should have been recognised in 2007. (6 Marks) C. Considering the cost incurred to the end of 2007, are the company’s estimates accurate? Solution A. B. Defective in 2006 Year of Sale 140 Second Year 280 Third Year 420 Fourth Year 560 1400 Warranty Expense $112,000 Less 2006 payment $12,000 Estimated Warranty Obligation $100,000 C. Estimated Expense Year of Sale Second Year Third Year
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Quiz2 Fall 2008 solutions - Question 1 XYZ Inc provides the...

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