Question

At the beginning of 2018, Angel Corporation began offering a two-year warranty on its products. The warranty program was expected to cost Angel 6% of net sales. Net sales made under warranty in 2018 were $193 million. Fifteen percent of the units sold were returned in 2018 and repaired or replaced at a cost of $5.00 million. The amount of warranty expense on Angel's 2018 income statement is:

Answer 1

Answer:

The amount of warranty expense on Angel's 2018 income statement is $11.58 million.

Explanation:

Income statement : The income statement is that statement which represents the income for the particular year.

The income is calculated by subtracting all types of costs from sales revenue.

The motive behind the preparation of income statement is to examine the company profitability, financial performance, etc.

The amount of warranty expense on Angel's 2018 income statement is calculated below

= Net sales × cost of warranty program

= $193 million × 6%

= $11.58 million

The other cost like repairing cost or replacement cost is not considered while calculating the warranty expense

Hence, the amount of warranty expense on Angel's 2018 income statement is $11.58 million.