In 20X3 Pilo Corp. began offering a one-year warranty on its AT24 product to provide assurance the product will meet agreed-upon specifications.
The new warranty program began at the beginning of 20X3. The warranty is not sold separately from the AT24 product. Overall, the product has been well received in the market and customers are satisfied with its quality.
The graph reflects the warranty provision and costs incurred between 20X3 and 20X7. The provision as a percentage of sales is shown and costs incurred as a percentage of sales is shown.
Pilo Corp.’s warranty provision is based on a percentage of sales.
There was no change to the AT24 product or warranty policy during the period shown on the graph.

Required:
Interpret the graph and discuss the warranty provision trend between 20X3 and 20X7. Is the trend in the provision surprising?

Transcribed Image Text:

Amount $50,000 $45,000- $40,000 $35,000 $30,000 $25,000 $20,000. $15,000 $10,000 $5,000 $- 6% 4% 20X3 6% 2% 20X4 1% 20X5 Year Warranty provision Costs Incurred Pilo Corp. Warranty Provision and Costs Incurred 20X3-20X7 8% 20X6 Provision as percentage of sale 8% 20X7 9 8 7 6 5 חו 4 3 2 1 0 Costs as percentage of sales Percentage