An entity manufactures a baby swing product, for which it gives a full warranty for all manufacturing defects. In 2020 reporting period, the entity sells 500,000 baby swings at 2,000€ each.
To sell these products, the company must pay a commission to distributor of 200€ each, which is including in the selling price of 2,000€.
The sell cannot be realised without passing the norms control performed by the authority in charge, this certificate costs 100€ per item.
If customers find minor repair faults, the entity will incur a cost of €2 million for repairs. If customers detect major faults, the entity will incur a cost of €50 million to replace all of the baby swings.
The baby swing product has been in the market for 5 years and there is a history of having 3% of baby swings returned for minor repairs and 0.5% for replacement because of major faults. The management of the entity believes that the same proportions can be expected in 2021.
Prepare the booking entries and indicate your assumptions for each entry.
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