How to Calculate Estimated Warranty Payable?

How can a company calculate the estimated warranty payable based on the monthly sales and warranty costs?

Calculating the estimated warranty payable involves understanding the percentage of sales that is allocated towards warranty costs. In this case, we are given that the monthly sales are $530,000 and the warranty costs are estimated at 5% of monthly sales. To calculate the estimated warranty payable, we simply multiply the monthly sales by the percentage allocated for warranty costs.

Calculation of Estimated Warranty Payable

To calculate the estimated warranty payable, we use the formula:

Estimated Warranty Payable = Monthly Sales x Warranty Cost Percentage

Given that the Monthly Sales are $530,000 and the Warranty Cost Percentage is 5%, we can plug these values into the formula:

Estimated Warranty Payable = $530,000 x 5% = $26,500

Therefore, the company should record a journal entry with a credit to Estimated Warranty Payable for the amount of $26,500 at the end of the month.

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