Calculating Company's Warranty Expense for November

What is the company's warranty expense for the month of November?

Answer:

Calculating Warranty Expense

To calculate the company's warranty expense for the month of November, we need to consider the number of computers sold and the cost per computer for warranty claims.

Given information:

• Selling price of each computer: $1,800
• Warranty coverage: 2% of computers sold
• Average cost per warranty claim: $150
• Computers sold in November: 30,000
• Computers serviced under warranty in November: 400
• Total cost of warranty claims in November: $55,000
• Balance in Estimated Warranty Liability account at November 1: $29,000

First, we calculate the number of computers expected to be serviced under warranty based on the sales:

Number of computers expected to be serviced = (2% of computers sold)

Number of computers expected to be serviced = (2/100) * 30,000

Number of computers expected to be serviced = 600

Next, we calculate the expected warranty expense for the month:

Expected warranty expense = (Number of computers serviced) * (Average cost per warranty claim)

Expected warranty expense = 400 * $150

Expected warranty expense = $60,000

Now, we can determine the actual warranty expense for the month of November:

Actual warranty expense = (Total cost of warranty claims) - (Increase in Estimated Warranty Liability)

Actual warranty expense = $55,000 - ($60,000 - $29,000)

Actual warranty expense = $55,000 - $31,000

Actual warranty expense = $24,000

Therefore, the company's warranty expense for the month of November is $24,000.