Mariano corporation sells 8 comma 000 units of inventory during the first year of operations for $ 400 each. mariano provides a oneminusyear warranty on parts. it is estimated that 3% of the units will be defective and that repair costs are estimated to be $ 40 per unit. in the year of sale, warranty contracts are honored on 80 units for a total cost of $ 3 comma 200. what amount will be reported as estimated warranty liability at the end of the year?

amount of Estimated Warranty is $6400

Explanation:

Given data

sells =  8,000  units

1st year = $400

defective rate = 3 %

repair costs  = $40

honored = 80 units

total cost = $ 3200

to find out

amount will be reported as Estimated Warranty

solution

we will calculate here amount of Estimated Warranty that by formula given below

amount of Estimated Warranty  = [ (units sold × Defective rate ) – honored ] ×  repair cost

amount of Estimated Warranty =[ (8,000 × 3%) – 80 ] × 40

amount of Estimated Warranty = (240  – 80)  × 40

amount of Estimated Warranty = 160  × 40

amount of Estimated Warranty  = $6400

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