A Company Sells Computers with a 6-Month Warranty

question 2

Essay

A company sells computers with a 6-month warranty. In January, the company sold 100,000 computers at $1,750 each; and 1,500 computers were turned in for repairs during that same month. The total repairs amounted to $185,000 costs from the computer parts inventory. It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $200 per unit. Prepare the journal entries to record (a) estimated warranty expense for January and (b) warranty repair costs for January.

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Definitions:

Production Function

An economic model that describes the relationship between inputs used in production and the resulting output.

Double Its Inputs

The act of a firm increasing the amount of inputs used in production, such as labor and capital, by two times.

Level of Output

The quantity of goods or services produced by a firm or economy during a specific time period.

Cobb-Douglas

A mathematical function used in economic models to represent the relationship between two or more inputs and the resulting level of output.