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Work & small business · 426

Warranty reserve calculator

What should you set aside for warranty claims?

Your numbers

units
%
$
$

Explore the numbers

Examples, chart, and saved snapshots

Start with a realistic example, adjust the inputs, or save your numbers before experimenting.

Example 1

800 units with a 2.5 percent claim rate

You sold 800 units and collected 40,000. You type a 2.5 percent claim rate and a 20 cost per claim. The 2.5 percent is an example rate. ASU 2014-09 does not publish one. Replace it with the share of units that have claimed in your own history.

$400.00for the claims you expect
Example 2

Units sold: 25% lower

Change units sold to 600 units while keeping the other example values the same.

$300.00for the claims you expect
Example 3

Units sold: 25% higher

Change units sold to 1,000 units while keeping the other example values the same.

$500.00for the claims you expect

Interactive chart

See what changes the result

Result—

The chart changes one input while holding all other current values steady. It is a sensitivity view, not a forecast.

Browser snapshots

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Quick answer

What does the Warranty reserve calculate?

What should you set aside for warranty claims? This calculator uses units sold, claim rate, cost per claim, and sales to estimate expected claims times the cost of one claim immediately in your browser.

With the values currently entered, the result is $400.00 — for the claims you expect. It also shows expected claims, cost per claim, and share of sales.

How to use the Warranty reserve

  1. Replace the example values with your own numbers.
  2. Review the result and supporting figures as they update automatically.
  3. Check the formula and assumptions before using the estimate for a decision.

Inputs used

  • Units sold — entered in units
  • Claim rate — entered in %
  • Cost per claim
  • Sales

Warranty reserve formula

Reserve = units sold × claim rate × cost per claim. The share of sales is that reserve ÷ sales.

Assumptions

  • FASB Accounting Standards Update 2014-09 says that if a customer cannot purchase a warranty separately, the entity accounts for the warranty under the product-warranty guidance in Subtopic 460-10, unless the warranty, or part of it, also provides a service beyond the assurance that the product meets the agreed specifications.
  • The dollars here are the units you sold, times the claim rate you type, times the cost per claim you type. ASU 2014-09 does not publish a claim rate. A warranty the customer can buy on its own is a performance obligation, so its price is deferred revenue rather than this cost accrual.

Verify the inputs

Authoritative sources

These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.

ASU 2014-09, Revenue from Contracts with CustomersFinancial Accounting Standards BoardScope: US GAAP revenue recognition; warranty guidance

If a customer cannot purchase a warranty separately, the entity accounts for it under the product-warranty guidance in Subtopic 460-10, unless the warranty also provides a service beyond assurance that the product meets the agreed specifications. A separately priced warranty is a performance obligation.

Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.

Practical guide

Warranty reserve example and edge cases

A warranty reserve is the cost you expect claims to take. FASB ASU 2014-09 says a warranty the customer cannot buy separately is accounted for under the product-warranty guidance in Subtopic 460-10, unless that warranty also provides a service.

Example: 800 units with a 2.5 percent claim rate

You sold 800 units and collected 40,000. You type a 2.5 percent claim rate and a 20 cost per claim. The 2.5 percent is an example rate. ASU 2014-09 does not publish one. Replace it with the share of units that have claimed in your own history.

Units sold
800 units
Claim rate
2.5 %
Cost per claim
20
Sales
40,000

Calculated result$400.00for the claims you expect

Expected claims are 20 units, because 2.5 percent of 800 is 20. At 20 each, the reserve is 400. That 400 is 1 percent of the 40,000 in sales.

Example results use the default display profile. The calculator above follows your selected country and units.

How to read the result

  • Read the 400 first. It is 20 expected claims times a cost of 20. The 1 percent is 400 divided by 40,000 of sales, so you can set the reserve next to revenue.
  • ASU 2014-09 points an assurance-type warranty at Subtopic 460-10. The accrual belongs when a loss is probable and you can estimate the cost. This page multiplies the rate and the cost you type, and you still make that probability call.

Edge cases worth checking

The warranty is priced on its own

ASU 2014-09 treats a warranty the customer can buy separately as a performance obligation. You defer that revenue. Leave those contracts out of the units box, or the 400 mixes a cost accrual with revenue you should defer.

The claim rate was quoted on sales dollars

This percent is a share of units. A rate that is already dollars of claims per dollar of sales gets multiplied by the 40,000, and the cost-per-claim box stays out of it. Using 2.5 here and also as a share of sales describes a different estimate than the 400.

What changes the result most

Units sold

Use the count you expect in real life. Round up when a partial units cannot be purchased or used.

Claim rate

Test a lower and higher claim rate. A small percentage change can move the final result more than expected.

Cost per claim

Use a current amount for cost per claim. Include fees or recurring costs that belong in the same figure.

Try a different scenario

Small changes show whether the answer is stable or sensitive.

Units sold: 25% lower

600 units

$300.00for the claims you expect

Units sold: 25% higher

1,000 units

$500.00for the claims you expect

Claim rate: 25% higher

3.125 %

$500.00for the claims you expect

Common mistakes

Check units sold

FASB Accounting Standards Update 2014-09 says that if a customer cannot purchase a warranty separately, the entity accounts for the warranty under the product-warranty guidance in Subtopic 460-10, unless the warranty, or part of it, also provides a service beyond the assurance that the product meets the agreed specifications. Make sure this matches the number you enter.

Keep sales consistent

The dollars here are the units you sold, times the claim rate you type, times the cost per claim you type. ASU 2014-09 does not publish a claim rate. A warranty the customer can buy on its own is a performance obligation, so its price is deferred revenue rather than this cost accrual. Use the same units and time period throughout the calculation.

Do not rely on one warranty reserve scenario

Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.

Use this result well

Use it for

What should you set aside for warranty claims?

Do not use it as

It does not replace a quote, contract, accountant, or local employment guidance.

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