Shear Company Sells Computer Equipment with a 2-Year Warranty

question 17

Multiple Choice

Shear Company sells computer equipment with a 2-year warranty.Prior experience indicates that costs associated with this warranty average 1% in the first year and 2% in the second year.In 2018,Shear had sales of $1,800,000.It paid $250,000 for materials and labour to make warranty-related repairs in 2018.What amount should the warranty expense for 2018 be?

• A)$18,000
• B)$36,000
• C)$54,000
• D)$250,000

---

Definitions:

Joint Costs

Costs incurred in the process of producing two or more products simultaneously, where the costs cannot be individually attributed to the products until a certain split-off point.

Market Value

The present cost at which a service or asset is available for purchase or sale.

Joint Cost Allocation

The process of distributing shared costs among different products, services, or business units.

Split-Off

A process in the production or manufacturing where a certain point separates products or components into distinct paths.