Warranty Claims & Quality Cost
Estimate warranty provisions and Cost of Poor Quality. Enter values for instant results with step-by-step formulas.
Formula
Warranty Cost = Units × FailureRate% × AvgRepairCost
The total warranty provision (liability) is the number of units sold multiplied by the expected failure rate, multiplied by the average cost to service a claim (including logistics, parts, and labor).
Worked Examples
Example 1: Electronics Launch
Problem:10,000 units. 2% failure. $150 repair.
Solution:Failures: 200. Total Cost: 200 * $150 = $30,000. Cost/Unit: $3.
Result:$30,000 Provision
Frequently Asked Questions
What is Warranty Provision?
An accounting liability recorded at the time of sale. It estimates the future cost of servicing warranties for that batch. It matches expenses to revenue.
What is an Extended Warranty?
An insurance product sold separately. Unlike manufacturer warranty (cost), extended warranty is a profit center.
How to reduce warranty costs?
Better QA in factory (catch defects before shipping), better packaging (reduce shipping damage), and clear manuals (reduce NTF).
How does warranty length affect cost?
Linearly or exponentially. Extending from 1 to 2 years might capture the 'Wear out' phase, doubling or tripling costs.