Question

Blast sells portable CD players, and each unit carries a one-year replacement warranty. The cost of repair defects under the warranty is estimated at 10% of the sales price. During May, Blast sells 650 portable CD players for $50 each. For what amount in May would Blast debit Product Warranty Expense?

Answer 1

Answer: Blast would debit the product warranty expense with $3,250

Explanation: The cost of repair under warranty is 10% of salea price. The sales price per unit is $50 of which 650 CDs were sold.

Therefore the product warranty expense will be (10% * ($50 * 650 CDs)) = $3,250.