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EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During 2017, the company recorded net sales of $1,900 million. Historically, about 4% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 30% 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?

Sagot :

abiolataiwo2015

Answer:

$22.8 million

Explanation:

Calculation to determine EZ Wheels Corporation’s warranty expense for 2017

Using this formula

2017 Warranty expense=Net sales*Percentage of sales returned*Percentage cost of replacing goods

Let plug in the formula

2017 Warranty expense=$1,900 million x 4% x 30%

2017 Warranty expense= $22.8 million

Therefore EZ Wheels Corporation’s warranty expense for 2017 is $22.8 million

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