Alpha Company sells widgets for $20 each. The widget has a one year warranty. Alpha estimates that 6% of the widgets will require repair during the warranty period. The estimated average repair cost is $4.30 per widget. On July 31, the Estimated Warranty Liability account had a normal balance of $15,000. During August, sales were $70,000. During August, 550 widgets were repaired under the warranty agreement with an actual cost of $4.50 each. Use this information to determine:
1. The August 31 Estimated Warranty Liability ending balance
2. The August Warranty Expense
I feel like maybe I am overthinking this question, here is what I have so far:
550 widget x $4.50= $2,475 is the August warranty expense
$15,000 (Warranty Liability Account) – $2,475 (August Expense)= $12,525 August 31 Estimated Warranty Liability ending balance
Do I have my calculations correct, or am I missing something?