A cereal company includes one premium coupon in every cereal box. Upon returning 10 such coupons to the company, a customer will be sent a free cereal bowl. In a recent year, the company sold 200,000 boxes of cereal for $1 a box. It is estimated that 20% of the coupons will be returned. If the cereal bowls cost the company $3 each, what amount of liability for premium redemptions must be recorded by the company?

Question

Quizplus · Accepted Answer

The company expects 20% of the 200,000 coupons to be returned, which is 40,000 coupons. Since 10 coupons are needed for one bowl, 4,000 bowls will be redeemed. At $3 per bowl, the liability is 4,000 x $3 = $12,000.

A Cereal Company Includes One Premium Coupon in Every Cereal