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During 2020, in its first year of operations, Praet Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 6% in the second year after sale. Sales were $3,600,000, $4,500,000 and $5,200,000 in 2020, 2021 and 2022, respectively. Actual warranty expenditures were $112,000, $273,000 and $302,000 in 2020, 2021 and 2022, respectively. How much is the total warranty expense recognized by Praet during 2020, 2021 and 2022?

Respuesta :

Answer:

$725,000

Explanation:

The computation of the total amount of warranty expense is shown below:

Particulars   2020 2021 2022 Total

Sales 3,600,000 4,500,000 5,200,000  

Add:

Warranty expense for current year sales

                     $72,000  $90,000  $104,000  

(3,600,000 × 2%)  (4,500,000 × 2%)      (5,200,000 × 2% )

Add:

Warranty expense for previous year sales

                         0  $108,000  $135,000

                                 ( 3,600,000 × 3%    (4,500,000 × 3%)

Add:

Warranty expense for 2 year ago sales

                       $0         $0       $216,000

                                                 (3,600,000 × 6%)  

Total 72,000 198,000 455,000 $725,000

We simply added the expenses based on the given criteria in the question

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