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Calculation of Warranty Expenses And Cost Of Repairing And Replacing Goods Under Warranty

Question

Dont Fall Down Incorporated manufactures skates and equipment for in-line skating. The company offers a one-year warranty on all products. During 2012, the company recorded net sales of $3,887.4 million. Historically, about 2% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 50% of retail value. Assume that at the start of the year Dont Fall Down’s balance sheet included an accrued warranty liability of $16.9 million and at the end of the year, the accrued warranty liability balance was $13.0 million.

1. Calculate Dont Fall Down’s warranty expense for 2012.

2. How much did Dont Fall Down pay during the year to repair and or replace goods under warranty?

Summary

These short answer questions belong to Finance. The 1st question is about calculation of warranty expenses for the year 2012. The 2nd question is about the repairing and replacing goods under warranty.

Total Word Count 19

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