Tekniks Sells Electronic Products, Such as Televisions and Stereo Components

question 84

Multiple Choice

Tekniks sells electronic products, such as televisions and stereo components.Each product is sold with a two-year warranty.During this period, Tekniks will provide parts and labour for repairs at no cost to the customer.Due to the highly competitive nature of the business, the warranty program has resulted in an increase of 20% in sales.Similar warranty programs at competitors sell for $200 to $500. How should Tekniks recognize revenues from their sales?

• A)Recognize the revenues from the sale when the customer takes possession of the product
• B)Recognize the revenues from the sale of the product when the customer takes possession of it, and the revenues from the warranty program at the end of the two-year period
• C)Recognize the revenues from the sale of the product when the customer takes possession of it, and the revenues from the warranty program evenly over the two-year period
• D)Wait until the end of the two-year warranty period before recognizing any revenues

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Definitions:

Departmental Predetermined Overhead Rates

The overhead rates assigned to specific departments based on estimated costs and activity levels, used for allocating overhead to products.

Machine-Hours

A measure of the amount of time a machine is operated in a given period, often used in manufacturing to allocate costs or set production schedules.

Forming Department

A specific section within a production facility where raw materials are shaped or configured into their product form.

Overhead Applied

The portion of estimated overhead costs allocated to individual products or job orders based on a predetermined rate or method.