LulzbotCom Sells 6000 Units of Its Product for $500 Each

question 127

Multiple Choice

Lulzbot.com sells 6000 units of its product for $500 each during the year ending December 31 2017. 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 120 units for a total cost of $6000. What amount will be reported on Lulzbot.com's balance sheet as Warranty Liability on December 31 2017?

• A) $6000
• B) $9000
• C) $3000
• D) It cannot be determined.

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Definitions:

Direct Materials

Definition: Raw materials that can be directly traced to the production of a specific product.

Conversion Costs

The combined costs of direct labor and manufacturing overhead incurred in transforming materials into finished goods.

Materials Cost

The total expense incurred for materials that are used in the production of goods or in the provision of services.

Weighted Average Method

An inventory costing method that assigns an average cost to each item based on the total cost of goods available for sale and the total quantity available.