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A General Model of Future Period Warranty Costs.

Henry N. Amato¹; Evan E. Anderson²; David W. Harvey³

¹ Associate Professor of Business Administration, College of Business Administration, Eastern Illinois University. 1 · ² Visiting Associate Professor of Management, Graduate School of Management, Vanderbilt University. 2 · ³ Assistant Professor of Accounting, Graduate School of Business, Tulane University. 3

The article focuses on the measurement and reporting of the total costs associated with an explicit warranty rebate program offered on repairable products. First, it develops the various model components which describe, as a function of time, rebate and nonrebate costs. These components then are integrated into a model to measure resulting costs of a warranty rebate program and to assign these costs to separable accounting periods. Rebate costs in general arise entirely at the discretion of the firm since they are associated with promises made to buyers at the option of the firm. Their specific amounts vary with the conditions of the warranty and the actual performance of the product. However, once issued expressed warranties give rise to manufacturers' liabilities associated with their promises that certain specified standards of product quality and/or performance shall accompany the product. Given the conditions of the warranty, including a schedule of benefits available to eligible claim holders, rebate costs are determined primarily by the quantity of product sold to consumers and by the frequency of product failures during the post-sale period.

DOI

10.2308/tar-4510155

Volume

51 (4)

Pages

854-862

Language

en

Export

BibTeX

Sources

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