A cereal company includes one premium coupon in every cereal box.Upon returning ten 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?

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Quizplus · Accepted Answer

The company sold 200,000 boxes, so 200,000 coupons were distributed. If 20% are returned, that's 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 bowls * $3 = $12,000.

A Cereal Company Includes One Premium Coupon in Every Cereal