The purpose of this policy is to establish a methodology for determining and calculating warranty rates, warranty accrual, and analyzing the appropriateness of the warranty reserve for customer service inventory and future returns of product by customers. It applies to all business units that sell products to a third party and provide a warranty to that customer and/or hold inventory for customer service repairs.
In this sample, the company provides warranty on a variety of products sold. A warranty reserve is accrued quarterly for inventory sold to customers with warranty privileges. The warranty reserve methodology is based on supporting calculations and computation.