How much is the amount of provision for warranty in 2021?
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Adorable Company owns a car dealership that it uses for servicing a car under warranty. The company’s past experience with warranty claims is as follows: 50% of the cars sold in a year have zero defect, 30% of the cars sold in a year have normal defect, and 20% of the cars sold in a year have significant defect. The cost of rectifying the normal defect is P10,000 while the significant defect is P30,000. The company sold 500 cars in 2021.
How much is the amount of provision for warranty in 2021?
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- Clearview Company manufactures and sells high-quality television sets. The most popular line sells for $1,000 each and is accompanied by a three-year warranty to repair, free of charge, any defective unit. Average costs to repair each defective unit will be $90 for replacement parts and $60 for labor. Clearview estimates that warranty costs of $12,600 will be incurred during 2012. The company actually sold 600 television sets and incurred replacement part costs of $3,600 and labor costs of $5,400 during the year. The adjusted 2012 ending balance in the Estimated Liability for Warranties account is $10,200. Required1. How many defective units from this year's sales does Clearview Company estimatewill be returned for repair?2. What percentage of sales does Clearview Company estimate will be returned forrepair?3. What steps should Clearview take if actual warranty costs incurred during 2013 aresignificantly higher than the estimated liability recorded at the end of 2012?USA, a tire manufacturer, guarantees its tires against defects for five years or 60,000 miles, whichever comes first. Suppose Trail Runner USA can expect warranty costs during the five-year period to add up to 3% of sales. Assume that a Trail Runner USA dealer in Denver, Colorado, made sales of $670,000 during 2018. Trail Runner USA received cash for 35% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19,000 during 2018. Record the sales, warranty expense, and warranty payments for Trail Runner USA. Ignore cost of goods sold. Post to the Accrued Warranty Payable T-account. The beginning balance was $16,000. At the end of 2018, how much in accrued warranty payable does Trail Runner USA owe to its customers?Big Red Motors, Inc., employs 15 sales personnel to market its line of luxury automobiles. The average car sells for $75,000, and a 6 percent commission is paid to the salesperson. Big Red Motors is considering a change to the commission arrangement where the company would pay each salesperson a salary of $1,600 per month plus a commission of 2 percent of the sales made by that salesperson. What is the amount of total monthly car sales at which Big Red Motors would be indifferent as to which plan to select?(CMA adapted)
- Heavy Duty Company, a manufacturer of power tools, decides to offer a rebate of $130 on its 16-inch midrange chain saw, which currently has a retail price $490. Heavy Duty's marketers estimate that, as a result of the rebate, sales of this model will increase from 60,000 to 80,000 units next year. The profit margin for Heavy Duty before the rebate is $180. Based on the given information, is the decision to give the rebate a wise one? ExplainGerrinAL sells five machines to VernAL for $500,000 per machine, the list price for the machines is $600,000. In a separate contract they sell maintenance services on the five machines for the first year. They charge $12,000 per machine for the maintenance, the list price for maintenance on the machine. As an incentive to sign the maintenance contract, GerrinAL gives VernAL a 25% discount on the purchase of machines in the next 75 days. No discounts are granted to other customers and they project there is 41% probability they will use the discount to purchase one machine with a stand-alone selling price of $600,000. What is the approximate contract consideration allocated to the discount? Select one: a. $150,000 b. $120,000 c. zero d. $50,000 e. $61,500Sunland, Inc. is a distributor of prepaid telephone cards to customers in its convenience stores. When Sunland sells the cards, it then pays the telecommunications company, TeleExpress, less a commission of 20 percent of the selling price to customers. Sunland receives $4,200 in cards in January 2020. Sunland sold 45% of the cards in February, 30% in March, and 25% in April. It costs TeleExpress $3,000 to provide the telephone service on the cards sold by Sunland.Indicate how much income Sunland should recognize in January, February, March, and April.
- Trust is an insurance company and it has 10000 cars insured for crash accident. The company's record for the past 10 years shows that on average 3% of cars have crashed each year. Compute the expected number of cars to be crashed per year? What is the objective risk of Trust company? Assume that birr 500000 is the amount of compensation payments Trust will cover for the insured if accident happened, what is the maximum and minimum amount of birr Trust company is expected to pay?A company estimates that 1% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $500. How much should they charge to have an expected value of $25 on each warranty?A company sells flood insurance to homeowners for $230 per year. It estimates there is a 1.2% chance of any house flooding in a year. When a house floods, the company's average payout is $17,600 (though the company keeps the $230 in any case). What is the company's expectation for each policy sold?
- Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.Porter Insurance Company has three lines of insurance: automobile, property, and life. The life insurance segment has been losing money for the past five quarters, and Leah Harper, Porters controller, has done an analysis of that segment. She has discovered that the commission paid to the agent for the first year the policy is in place is 55 percent of the first-year premium. The second-year commission is 20 percent, and all succeeding years a commission equal to 5 percent of premiums is paid. No salaries are paid to agents; however, Porter does advertise on television and in magazines. Last year, the advertising expense was 500,000. The loss rate (payout on claims) averages 50 percent. Administrative expenses equal 450,000 per year. Revenue last year was 10,000,000 (premiums). The percentage of policies of various lengths is as follows: Experience has shown that if a policy remains in effect for more than two years, it is rarely cancelled. Leah is considering two alternative plans to turn this segment around. Plan 1 requires spending 250,000 on improved customer claim service in hopes that the percentage of policies in effect will take on the following distribution: Total premiums would remain constant at 10,000,000, and there are no other changes in fixed or variable cost behavior. Plan 2 involves dropping the independent agent and commission system and having potential policyholders phone in requests for coverage. Leah estimates that revenue would drop to 7,000,000. Commissions would be zero, but administrative expenses would rise by 1,200,000, and advertising (including direct mail solicitation) would increase by 1,000,000. Required: 1. Prepare a variable-costing income statement for last year for the life insurance segment of Porter Insurance Company. 2. What impact would Plan 1 have on income? 3. What impact would Plan 2 have on income?Porter Insurance Company has three lines of insurance: automobile, property, and life. The life insurance segment has been losing money for the past five quarters, and Leah Harper, Porters controller, has done an analysis of that segment. She has discovered that the commission paid to the agent for the first year the policy is in place is 55 percent of the first-year premium. The second-year commission is 20 percent, and all succeeding years a commission equal to 5 percent of premiums is paid. No salaries are paid to agents; however, Porter does advertise on television and in magazines. Last year, the advertising expense was 500,000. The loss rate (payout on claims) averages 50 percent. Administrative expenses equal 450,000 per year. Revenue last year was 10,000,000 (premiums). The percentage of policies of various lengths is as follows: Experience has shown that if a policy remains in effect for more than two years, it is rarely cancelled. Leah is considering two alternative plans to turn this segment around. Plan 1 requires spending 250,000 on improved customer claim service in hopes that the percentage of policies in effect will take on the following distribution: Total premiums would remain constant at 10,000,000, and there are no other changes in fixed or variable cost behavior. Plan 2 involves dropping the independent agent and commission system and having potential policyholders phone in requests for coverage. Leah estimates that revenue would drop to 7,000,000. Commissions would be zero, but administrative expenses would rise by 1,200,000, and advertising (including direct mail solicitation) would increase by 1,000,000. Required: 1. Assume Fred holds the policy for one year and then drops it. What is his contribution to Porters operating income? 2. Assuming Fred holds the policy for three years, what is his contribution to Porters operating income in the second and third years? Over a three-year period? What implications does this hold for Porters efforts to retain policyholders?
