Echo-Echo Ltd sells robots under warranty. Past experience has taught the company’s accountant that:  95% of the robots will have no defects.  3% of the robots will have minor defects.  2% of the robots will have major defects. If all robots sold had minor defects, the cost of repair would be £1,800,000. If all robots sold had major defects, the cost of replacement would be £ 2,500,000. What would be the value of the provision for warranties based on the expected value?

Echo-Echo Ltd sells robots under warranty. Past experience has taught the company’s accountant that:  95% of the robots will have no defects.  3% of the robots will have minor defects.  2% of the robots will have major defects. If all robots sold had minor defects, the cost of repair would be £1,800,000. If all robots sold had major defects, the cost of replacement would be £ 2,500,000. What would be the value of the provision for warranties based on the expected value?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 10MC

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