Question

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much warranty expense should the company record this year? a. $30,000. b. $25,000. c. $10,000. d. $5,000. e. 25,000

Answer 1

The answer is $5,000 indeed

Answer 2

Answer:D - $5,000

Explanation: The company has an estimated warranty cost of 5% of sales which is $30,000. This can be recorded as a warranty payable provision in the books of the company as it gives a 3years warranty on its products. As stated in the question, out of the $30,000 warranty provision, only $5,000 was expensed in the current year leaving a bal of $25,000 for the remaining 2 years which the company has given to its customers. So only $5,000 warranty expense will be recorded in the current year.