Warranty Costs
Milford Company sells a motor that carries a three-month unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, two percent of the units sold will require repair at an average cost of $50 per unit. The following data reflect Milford’s recent experience:
| October | November | December | Dec. 31 Total | |
|---|---|---|---|---|
| Units sold | 26,000 | 26,000 | 28,000 | 80,000 |
| Known product failures from sales in: | ||||
| October | 130 | 190 | 160 | 480 |
| November | 140 | 220 | 360 | |
| December | 210 | 210 |
Calculate, and prepare a journal entry to record, the estimated liability for product warranties at December 31. Assume that warranty costs of known failures have already been reflected in the records.
| General Journal | |||
|---|---|---|---|
| Date | Description | Debit | Credit |
| Dec.31 | $ | $ | |
| To provide for estimated future warranty expense. | |||
