Dougan Company Manufactures and Sells Widgets

question 36

Essay

Dougan Company manufactures and sells widgets. Each widget costs $60 and sells for $100. Each widget carries a warranty that provides for free replacement if it fails for any reason during the next 36 months. In the past, 4 percent of the widgets have had to be replaced under the warranty. During May, Dougan sold 2,000 widgets and replaced 150 under warranty. Calculate the product warranty expense for the month. Show your computation.

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Definitions:

Trading Securities

Financial assets such as stocks or bonds, held by a firm for the purpose of reselling them in the short term to profit from price movements.

Held Primarily

Indicates that the main reason for holding an asset or investment is for a specific purpose, not necessarily for immediate sale.

Amortized Book Value

The adjusted book value of an asset after accounting for amortization expenses.

Bond Investment

The act of investing in bonds, which are debt securities issued by entities to raise capital, offering fixed income over time.