Work out warranty cost provision instantly with clear inputs, formula shown and shareable results.
A warranty provision is expected claims multiplied by average repair cost, recognised when the product is sold rather than when the claim arrives. The per-unit figure is what belongs in the product cost card, and it must be revised as field failure data accumulates.
Expected claims
Claims = Units sold x Expected failure rate %
Provision
Provision = Expected claims x Average repair cost
At the point of sale, because the obligation arises from the sale. Recognising it when claims arrive misstates the period's profit.
From field data on prior versions, adjusted for design changes. New products with no history need a conservative estimate and early revision.