Shell Company sells a product that carries a 60-day unconditional warranty against product failure. Based on statistical analysis, Shell knows that between the time of sale and the lapse of the warranty, 4% of the units sold will fail and require repair at an avenge cost of $40 per unit.
The following data reflect the first three months during which the product was sold.

What amount will Shell record for its estimated liability for product warranties at December 31? Assume that warranty costs of known failures have already been reflected in the records.

Question

Shell Company sells a product that carries a 60-day unconditional warranty against product failure. Based on statistical analysis, Shell knows that between the time of sale and the lapse of the warranty, 4% of the units sold will fail and require repair at an avenge cost of $40 per unit. 
The following data reflect the first three months during which the product was sold.
 
 What amount will Shell record for its estimated liability for product warranties at December 31? Assume that warranty costs of known failures have already been reflected in the records.

Quizplus · Accepted Answer

The Answer of Shell Company sells a product that carries a 60-day unconditional warranty against product failure. Based on statistical analysis, Shell knows that between the time of sale and the lapse of the warranty, 4% of the units sold will fail and require repair at an avenge cost of $40 per unit. 
The following data reflect the first three months during which the product was sold.
 
 What amount will Shell record for its estimated liability for product warranties at December 31? Assume that warranty costs of known failures have already been reflected in the records.

Shell Company Sells a Product That Carries a 60-Day Unconditional