Draw Equation Warranty For Free

Warranty Reserve is a fund maintained by the manufacturer to meet warranty expenses. The warranty reserve balance is the balance left after deductions of claim expenses for the year. The accrual rate is usually a fixed percentage of sales and is managed by the finance department of the company.

An extended warranty price represents a percentage of the total product cost. As a general rule of thumb, you shouldn't spend more than 30% of the product cost on a product warranty.

From an accounting perspective, if the Warranty is of assurance type, the Warranty's provision is credited at the time of product sales and debited at the time of warranty execution. On the other hand, in the service warranty case, the deferred income (liability) is credited against receipt of the cash.

How to calculate warranty expenses Find the total number of products sold.Determine the percentage of defective products.Calculate the number of products needing replacement.Evaluate the cost of product replacement.Estimate the total warranty expense.

Definition: Warranty expense is the cost associated with a vendor or manufacturer's commitment to repair or replace a product, should it not perform as intended during a specified period of time. In other words, it's the cost of repairing or replacing defective products after they have been sold to customers.

To estimate the warranty expense for a company, we need to know three main things: Number of units sold during a particular accounting period. Percentage of the sold products that will probably need a repair or a replacement based on previous experiences. Average cost of repairing or replacing products under warranty.

Use the following steps as a guide to account for warranty expenses: Find the total number of products sold.Determine the percentage of defective products.Calculate the number of products needing replacement.Evaluate the cost of product replacement.Estimate the total warranty expense.