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At the beginning of 2021, Angel Corporation began offering a 1-year warranty on its products
At the beginning of 2021, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 5% of net sales. Net sales made under warranty in 2021 were $240 million. Five percent of the units sold were returned in 2021 and repaired or replaced at a cost of $10.6 million. The amount of warranty expense in Angel's 2021 income statement is: Multiple Choice + O $10.6 million O $36.0 million $9.2 million 0 $12.0 million
Expert Solution
The correct option is D i.e $12.0 million.
Working:
Warranty expenses (2021) = Net sales * Cost of warranty expenses
= $240 million * 5%
= $12 million.
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