Warranty costs

When you buy a product, unless you buy it on the flea market (where they have a rule “they gave it to me that way”), you get the right to warranty. By warranty, the manufacturer undertakes to repair or replace the damaged goods to another within the specified time period. Warranty is not something that is specifically bought, it comes with the product. How to calculate warranty costs?

We will show this on an example where we are analysing the sales of five models of mobile phones that are marked with certain (fictional) brand. If you look at the table, immediately after the item name, you will find two columns that represent quantities of sold and defective (returned) items. the quantity and quantity of defective (returned) items are sold there. By multiplying the quantity and price per item you’ll get the amount, and the total of all amounts represents the total annual sales.

The repair value is obtained by multiplying the average cost of the repair with the quantity of defective items. In this particular case, the assumption is that there is no repair, but that the defective phone is changed by the new one. Therefore, instead of the average price, the quantity should be multiplied by the value of the column in which price per item is found.

Finally, we can divide the total value of the repair with the total sales value and we will get the percentage of total sales that goes to the warranty costs. This was a very simple analysis that can be easily extended by review by months, compared to the total value of the stock, multiplying with the price of inventory cost, etc.