The Modified Cash Basis to Determine Warranty Expense

question 13

Multiple Choice

The modified cash basis to determine warranty expense

• A)violates the matching concept
• B)requires recognition in the period of sale of the estimated warranty expense and warranty liability
• C)separates accounting for two components of the sales price: the price of the product and the price of the warranty
• D)records warranty expense when the merchandise under warranty is sold

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Definitions:

Unit Product Cost

The cost assigned to a single unit of a product, incorporating all relevant expenses involved in its production.

Gross Margin

The difference between revenue and cost of goods sold, which indicates how much the company earns from its core business activities before overhead costs.

Absorption Costing

A bookkeeping approach that incorporates all production costs, including both fixed and variable expenses, into the pricing of a product.

Variable Costing

An accounting method that accounts only for variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product cost calculations, excluding fixed manufacturing overhead.