Background Mix Master (MM) manufactures cordless mixers for use in the kitchens of consumers. MM sells to retailers, which sell the mixers to the ultimate consumer. One of MM’s retail customers is Kitchen Hardware (KH). On January 1, MM sells to and receives payment from KH for 100 cordless mixers with a one-year warranty for $50 each. The mixers are delivered by MM to KH upon receipt of payment and the warranty is initiated at that time as well by MM. This warranty provides for a replacement of the mixer if the mixer fails to work properly within one year of the date of purchase. MM also sells its mixers with no warranty for $40 per unit. The cost to manufacture each mixer is $32. MM also provides its retail customers with sales incentives in the form of volume discounts on purchases of mixers with warranties paid at the end of an annual period. The agreement between MM and KH provides for the following volume discounts. Additionally, the probability of purchases for each volume level as estimated by MM is provided based on historical experience and forecasted sales.
Number of mixers Discount Probabiilty
Less than 1,000 0% 40%
1,000 through 1,999 5% 40%
2,000 or more 10% 20%
Requirements- Record all initial accounting entries for MM for the month of January based on the current guidance on revenue recognition in ASC 605. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.