As part of a promotion campaign,Funzy Cereal includes one coupon in each issue of various national magazines and offers a toy car in exchange for $1.00 and three coupons.The cars cost Funzy $1.50 each.Experience indicates that 4% of the coupons eventually will be redeemed.During the last month of 2013,the first month of the offer,12 million coupons were distributed and 240,000 million of the coupons were redeemed.What amount should Funzy report as a promotional expense for coupons on its December 31,2013,income statement?
A)$ 0.
B)$ 40,000.
C)$ 80,000.
D)$120,000.

Question

Quizplus · Accepted Answer

The promotional expense is calculated based on the number of coupons redeemed. With 240,000 coupons redeemed, and each toy car costing Funzy $1.50, the expense is 240,000 / 3 * $1.50 = $120,000. However, since the customer pays $1.00 for each car, the net cost to Funzy is $0.50 per car, leading to a total promotional expense of 240,000 / 3 * $0.50 = $40,000.

As Part of a Promotion Campaign,Funzy Cereal Includes One Coupon