Question

An entity sells products with a one-year warranty. Past data shows 4% of sales require repairs costing on average 30% of the product’s selling price. For current-year sales of ₹40,000,000, what provision for warranty should be recognized?

• A. ₹1,200,000
• B. ₹480,000
• C. ₹1,600,000
• D. ₹400,000

Answer 1

Answer:

B. ₹480,000

• The model requires multiplying sales by the probability of defect and the conditional repair cost percentage:

40000000 × 0.04 × 0.30 = 480000