Exhibit 13-1 The Jung Company includes a premium in each box of its cereal.For four premiums plus $2.00, customers are entitled to a plastic doll that costs Jung $4.50 each.Jung expects 60% of the premiums to be redeemed.In 2010, Jung sold 500, 000 boxes of cereal and distributed 25, 000 dolls.
-
Refer to Exhibit 13-1.What is Jung's estimated liability for unredeemed premiums on December 31, 2010?
A)$125, 000
B)$187, 500
C)$225, 000
D)$337, 500

Question

Quizplus · Accepted Answer

Jung expects 60% of the premiums to be redeemed, so 40% will not be redeemed. 40% of 500,000 boxes is 200,000 boxes. Each box requires four premiums, so 200,000 boxes will require 800,000 premiums. Each premium has a cost of $2.00, so the total cost of the unredeemed premiums is $1,600,000.

Exhibit 13-1 the Jung Company Includes a Premium in Each