Question

Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals are faulty and will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the Warranty Liability at the end of the year?

Answer 1

Answer: 7,000  ⇒ would be the Warranty Liability at the end of the year

Explanation:

percent of strikers' goals faulty = 2%

Goals sold = 4000 goals

Goals repaired = 45 goals

Estimated cost for repairing a goal = $200

Thus,

Number of goals to be repaired = 2% of goals are faulty

= $\frac{2}{100} \times 4000$

= 80 goals

∴ Estimated warranty liability = Number of goals to be repaired \times Estimated cost for repairing a goal

= 80 \times 200

= 16,000

Warranty already spent = goals that are already repaired \times Estimated cost for repairing a goal

= 45 \times 200

= 9,000

Hence,

Warranty Liability =  Estimated warranty liability - Warranty already spent

= 16000 - 9000

= 7,000  ⇒ would be the Warranty Liability at the end of the year.