Shear Company Sells Computer Equipment with a 2-Year Warranty

Shear Company sells computer equipment with a 2-year warranty. Prior experience indicates that costs associated with this warranty average 1% in the first year and 2% in the second year. In 2012, Shear had sales of $1,800,000. It paid $250,000 for materials and labour to make warranty-related repairs in 2012. What amount should the warranty expense for 2012 be?

A) $18,000
B) $36,000
C) $54,000
D) $250,000

Correct Answer:

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