Calculating warranty reserves typically involves estimating the cost of future warranty claims. This estimation is based on historical data, industry standards, and the expected number of units sold. Companies use various accounting principles and statistical methods to arrive at a reasonable figure. The formula often looks like this:
\[ \text{Warranty Reserve} = (\text{Number of Units Sold} \times \text{Expected Claim Rate}) \times \text{Average Cost Per Claim} \]