A cookie company includes one premium coupon in every cookie package. Upon returning 10 such coupons to the company, the customer will be sent a free cookie jar. In a recent year, the company sold 200,000 packages of cookies for $1 per package. It is estimated that 20% of the coupons will be redeemed. If the cookie jars cost the company $3 each, what amount of liability should be recorded?

Question

Quizplus · Accepted Answer

The number of premium coupons included in 200,000 cookie packages is:

200,000 cookies x 1 coupon/cookie package = 200,000 coupons

If 20% of these coupons are redeemed, then the number of free cookie jars that will be sent out is:

200,000 coupons x 20% = 40,000 coupons

To receive a cookie jar, a customer must return 10 coupons, so the number of cookie jars expected to be given away is:

40,000 coupons / 10 coupons/cookie jar = 4,000 cookie jars

The cost of each cookie jar is $3, so the total liability the company should record is:

4,000 cookie jars x $3/cookie jar = $12,000.

Therefore, the answer is B, $12,000.

A Cookie Company Includes One Premium Coupon in Every Cookie