Flag prepares monthly financial statements. Flag promises the customers a new model ship if they are unhappy at any time in the first 2 years after the purchase. Flag estimates that 6% of the ships need replaced, on average.
During May Flag Inc. sells 1,000 model ships for $50 each.
The cost of each ship to Flag is $20.
During May- Flag replaces 40 ships that were sold in prior months and were under warranty.
What will Flag recognize as warranty expense for May?
Round any answer to the nearest dollar. (Flag prepares monthly financial statements.)