EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During 2017, the company recorded net sales of $5,300 million. Historically, about 3% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 20% of retail value. Assume that at the start of the year EZ Wheels' balance sheet included an accrued warranty liability of $16.3 million and at the end of the year, the accrued warranty liability balance was $12.4 million. What was EZ Wheels Corporation's warranty expense for 2017

EZ Wheels Corporation's warranty expense for 2017 is $31.80 million.

Explanation:

EZ Wheels Corporation's warranty expense for 2017 can be calculated using the following formula:

Warranty expense for 2017 = Net sale for 2017 * Percentage sales returned under warranty * Percentage of retail value for cost of repairing and or replacing goods under warranty (1)

Where:

Net sale for 2017 = $5,300 million

Percentage sales returned under warranty = 3%

Percentage of retail value for cost of repairing and or replacing goods under warranty = 20%

Substituting the values into equation (1), we have:

Warranty expense for 2017 = $5,300 million * 3% * 20% = $31.80 million

Therefore, EZ Wheels Corporation's warranty expense for 2017 is $31.80 million.

$51.6 Million

Explanation:

Warranty expenses =5,300*3%*30% = 47.7 Million

Beginning Waranty Liability              $16.3 Million

Add: Warranty expenses                   $47.7 Million

                                                            $64 Million

Less: Ending Warranty liability           $12.4 Million

Amount paid on Warranty expenses $51.6 Million

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