provision for warranty- revenue (2)

Jjoypham8y ago

I dont know why the topic is close for new replies so sorry for the late response I was asking about how to make provision There are 2 cases 1. Customers buy, if return faulty goods within several day, they will be given a new one 2. Customers buy, if they return goods they are given the whole amount of money they paid So im thinking that in (1) the seller loses the cost of sales , and in (2) the seller loses cost and profit And the summary of the question í X sells camera In 2012, had sales of 4,000 (10 unit) , cost of sales of 2,000. 5 unit may be returned based on past experience, so how X should provide for the warranty ( in two cases above)

MikeLittleTutor8y ago#1

I believe that, on those figures, X should stop selling cameras ... or find a better brand 50% returns!!!! Let me change your unit sales to 5,000 with 50 potential returns based on historical experience If a camera is faulty, and is returned by a customer, surely the seller will return them to the manufacturer and be given a replacement camera. The seller will lose nothing (except a bit of goodwill because there is now an unhappy customer that bought a camera, took some pictures whilst on the holiday of a lifetime during which his daughter got married and now discovers that the camera is faulty) If a customer buys with the understanding that there is a trial period during which the customer can use the camera for 4 days (say) and then return it if it isn't to the customer's liking, history has shown that 50 out of 5,000 (so 1% of unit sales) are likely to be returned, the seller will lose the profit on that sale It would therefore be appropriate to provide for the lost profit on 1% of the unit sales Is that OK?

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