Excom sells radios, and each unit carries a two-year replacement warranty. The cost of repair defects under the warranty is estimated at 5% of the sales price. During September, Excom sells 100 radios for $50 each. One radio is actually replaced during September. For what amount in September would Excom debit Product Warranty Expense?
A) $50
B) $250
C) $30
D) $120

Question

Quizplus · Accepted Answer

Excom would debit Product Warranty Expense for the estimated cost of repairing defects under the warranty, which is 5% of the total sales price. The total sales price for 100 radios at $50 each is $5,000. Therefore, 5% of $5,000 is $250.

Excom Sells Radios, and Each Unit Carries a Two-Year Replacement