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Neer Company sells 2,000 units of its product for $500 each. The selling price includes a...

Neer Company sells 2,000 units of its product for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $50 per unit. In the year of sale, warranty contracts are honored on 40 units for a total cost of $2,000. What amount should Neer Company accrue on December 31 for estimated warranty costs?

A.

$2,000
B.

$3,000
C.

$1,000
D.

$15,000
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Answer #1

Estimated Warranty costs accrued on Dec 31

= Sales 2000 * 3% * 50

= 60 * 50

= 3000

Option B

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