Woosh Company sells two types of washing machines, Type 1 & Type 2. Type 1 is sold with a one-year warranty agreement that the company replaces defective parts and labor with no cost. However, due to the solid production process, the company estimates the warranty cost is 2 % of sales. For Type 2, the company offers a premium (Customers receive a coupon for each RM spent on Type 2). Customers may exchange 400 coupons and RM40 for a steam iron which cost the company RM60 for each. Woosh company estimates that 60% of the coupons given to customers will be redeemed.

In 2020, the total sales of Woosh company was RM4,000,000 (RM2,500,000 for Type 1 and RM1,500,000 for Type 2). The actual cost of a warranty during 2020 was RM50,000. 4,000 steam iron in the premium program were purchased during the year and there were 600,000 coupons redeemed in 2020. The balances of warranties and premiums on January 1, 2019, were Premium Liability of RM50,000, Warranty Liability of RM85,000, and Inventory premiums of RM52,000.

 

REQUIRED:
For the year ended 31 December 2020, calculate the:

(i) Warranty Expense

(ii) Warranty Liability

(iii) Premium Expense

(iv) Inventory of Premiums

(v) Premium Liability

Answer rating: 100% (QA)

i Warranty Expense Warranty expense is calculated as a percentage of sales for Type 1 washing machines Since the warranty cost is estimated to be 2 of ... View the full answer