Buy Best Company Sells Personal Computers for $2,300 Each

question 27

Essay

Buy Best Company sells personal computers for $2,300 each.The price includes a two-year warranty.During 2020,the company sells 600 computers.On the basis of past experience,the warranty costs are estimated to be $150 per computer.The actual warranty costs paid by Buy Best during 2020 were $45,000.Prepare general journal entries to record the estimated warranty expense and the warranty payments during 2020.

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Definitions:

Prevention Costs

Costs incurred to prevent defective units before they are produced. For example, reengineering products or production processes.

Appraisal Costs

Costs associated with the evaluation and inspection of products or services to ensure they meet quality standards.

Internal Failure Costs

Costs incurred when a defect is discovered before being received by a customer.

Variable Overhead

Costs that vary proportionally with the level of production or sales, such as utilities or commissions.