In an effort to increase sales,Sharpy Razor Blade Company inaugurated a sales promotion campaign on June 30,2014,whereby Sharpy placed a coupon in each package of razor blades sold,the coupons being redeemable for a premium.Each premium costs Sharpy $0.75,and five coupons must be presented by a customer to receive a premium.Sharpy estimated that only 60 percent of the coupons issued will be redeemed.For the six months ended December 31,2014,the following information is available:

What is the estimated liability for premium claims outstanding at December 31,2014?

Question

In an effort to increase sales,Sharpy Razor Blade Company inaugurated a sales promotion campaign on June 30,2014,whereby Sharpy placed a coupon in each package of razor blades sold,the coupons being redeemable for a premium.Each premium costs Sharpy $0.75,and five coupons must be presented by a customer to receive a premium.Sharpy estimated that only 60 percent of the coupons issued will be redeemed.For the six months ended December 31,2014,the following information is available:

What is the estimated liability for premium claims outstanding at December 31,2014?

Quizplus · Accepted Answer

To calculate the estimated liability for premium claims outstanding at December 31,2014, we need to first find out the total number of coupons expected to be redeemed.

Total coupons issued = Number of razor blades sold = 400,000 
Expected redemption rate = 60% 
Total coupons expected to be redeemed = 400,000 x 60% = 240,000

Since 5 coupons are required to redeem a premium, the number of premiums expected to be claimed = 240,000 / 5 = 48,000

The cost of each premium = $0.75 
Therefore, the estimated liability for premium claims outstanding at December 31,2014 = 48,000 x $0.75 = $36,000

However, we need to subtract the value of premiums already claimed from the estimated liability to arrive at the correct answer. From the given information, we know that 10,000 premiums were claimed before December 31, 2014. Therefore, the estimated liability for premium claims outstanding at December 31,2014 = ($36,000 - $15,000) = $21,000.

Hence, the correct answer is option C.

In an Effort to Increase Sales,Sharpy Razor Blade Company Inaugurated