I want to remind everyone on exam day to READ THE QUESTIONS THOROUGHLY. Leaving just one word out can cost you the right answer. I have a really bad habit of doing this!
Good morning, how is everybody doing…1st question for the day….
The Simpson Company sells toasters for $50 each. During Year One, Simpson sold 20,000 toasters. Each toaster has a warranty requiring the company to fix any problems within that occur within 12 months. Company officials believe that 8 percent of the toasters will break in that period and cost $20 each to fix. In Year One, 300 toasters break and are fixed at the anticipated cost. During Year Two another 1,200 of these toasters break; however, they now cost $25 each to fix. What expense should the company report in Year Two in connection with this warranty?
Simpson originally expected 1,600 toasters to break (20,000 times 8 percent). The company will recognize repair expense in Year One of $32,000 (these 1,600 toasters at a cost of $20 each). Ultimately, the actual cost amounts to $36,000 (300 toasters times $20 plus 1,200 toasters at $25 each). The extra $4,000 in expense ($36,000 less $32,000) is recognized in Year Two when it is shown that the original estimation was inaccurate.
I don't think all toasters were purchased in one day Dec 31 Y1, probably evenly during the year. Improvising here, average would be 600 toasters, expense 15 000, but seriously no idea )
Yes That was exactly my thinking.. since they said they bought during Y1 so it can be any month in Y1 so not very clear on when the 12mth warranty for all the 20,000 toasters end.
But i see you point too Anna. If that is what the question means – then Notaquitter is correct.
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