Question 1

SECTION B - CASE 1: AeroTech Drones

AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5.
AeroTech sells its drones with a standard one-year warranty. Based on past experience, 80% of drones will have no defects, 15% will have minor defects costing $200 to repair, and 5% will have major defects costing $1,000 to repair. During 20X5, AeroTech sold 5,000 drones.

What is the expected value of the warranty provision required at 31 December 20X5?

Accepted Answer

Calculate the expected value (probability-weighted average) of repair costs for a single drone, then multiply by the total number of drones sold.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Calculating the provision based only on the most likely outcome (which would be $0, as 80% have no defects).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 1

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