Albert Corp If the Expense Warranty Accrual Method Is Used, What Amount

question 1

Multiple Choice

Albert Corp. introduced a new machine on January 1, 2014. The machine carried a two-year warranty against defects. The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale. Additional information follows:

$\begin{array}{l}\begin{array}{rrr}\text { Actual Warranty }\\\underline{\text { Expenditures }}&\underline{\text { Sales}}&\underline{\text { Year}}\\\$ 600 & \$ 40,000 & 2014 \\2,200 & 60,000 &2015\end{array}\end{array}$

If the expense warranty accrual method is used, what amount relating to warranty expense should be reflected on the December 31, 2015 income statement?

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders.

Machine-Hours

The total time machines are operated within a certain period, often used to allocate manufacturing overhead.

Manufacturing Overhead

All manufacturing costs that are not directly associated with the production of goods, such as salaries of supervisors and the cost of factory utilities.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders based on a specific activity base.