Barlo Lunch Snacks places a coupon in each box of its cracker product. Customers may send in five coupons and $3, and the company will send them a recipe book. Sufficient books were purchased at a cost of $5 each. A total of 500,000 boxes of product were sold in 2014. It was estimated that 4% of the coupons would be redeemed. During 2014, 9,000 coupons were redeemed. What is Barlo's premium expense for 2014?
A) $ 4,400
B) $ 8,000
C) $20,000
D) $40,000

Question

Quizplus · Accepted Answer

The premium expense is the cost of the recipe books that were purchased to fulfill the offer, which is $5 per book. To calculate the number of books that need to be purchased, we need to first determine how many customers will send in five coupons. Since 4% of coupons are estimated to be redeemed and there were 500,000 boxes sold, we can find the total number of coupons distributed: 
500,000 boxes x 1 coupon per box = 500,000 coupons 
Then, we can estimate the number of customers who will send in five coupons: 
500,000 coupons x 4% redemption rate / 5 coupons per book = 4,000 books 
So, the cost of purchasing these books is: 
4,000 books x $5 per book = $20,000 
Therefore, the answer is B, $8,000.

Barlo Lunch Snacks Places a Coupon in Each Box of Its