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The Athletic Accountant Company produces exercise equipment for accountants. Its main product, the Pencil-Pusher Push-Up Platform, is sold with a three-year warranty against defects. The company expects that 1% of the units sold will prove to be defective in the first year after they were sold, 2% will be prove defective in the second year, and 3% of the units sold will prove to be defective in the third year. The average cost to repair or replace a defective unit under the warranty is expected to be $50.
The company's sales and warranty costs incurred during its first three years were as follows:
Units sold Actual costs of repairs and replacements under the warranty plan
2006 9,000 units $ 5,000
2007 12,000 units $ 16,000
2008 17,000 units $ 37,000
1. Total warranty costs are 1%+2%+3%=6% of sales. For 2006, total warranty costs would be ...
The solution explains how to determine the amount of warranty liability and warranty expense