Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year

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Business

Jayden Morrow

18 December, 18:18

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year

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Answers (1)

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Frederick Montes · Answer 1

Answer: $720

Explanation:

No. Of unit sold = 100

Rate of defective units = 4

Average Cost of fixing an oven=$80

2nd year estimate for defects = 5

Total defects = 9.

Pizza Shop report warranty liability at the end of the current year

=

Total estimated defective units * average warranty repair costs

= 9 x $80

= $720