Funzy Cereal includes one coupon in each package of Wheatos that it sells and of
ID: 2645720 • Letter: F
Question
Funzy Cereal includes one coupon in each package of Wheatos that it sells and offers a toy car in exchange for $1.70 and 4 coupons. The cars cost Funzy $2.20 each. Experience indicates that 30% of the coupons eventually will be redeemed. During the last month of 2013, the first month of the offer, Funzy sold 12.50 million boxes of Wheatos and 2.70 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2013, income statement?
Funzy Cereal includes one coupon in each package of Wheatos that it sells and offers a toy car in exchange for $1.70 and 4 coupons. The cars cost Funzy $2.20 each. Experience indicates that 30% of the coupons eventually will be redeemed. During the last month of 2013, the first month of the offer, Funzy sold 12.50 million boxes of Wheatos and 2.70 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2013, income statement?
Explanation / Answer
Total boxes sold are 12.50 million out of which generally 30% coupons are redeemed
Therefore expected number of Coupons redeemed = 30% of 12.50 millions =3.75 millions
Cost incurred per 4 coupons is $ 0.50 (i.e Car Cost $2.20 minus Exchange charges $1.70)
Total cost incurred to redeemed 3.75 millions coupns are: (3.75/4) * 0.50= $468750
hence option b is correct
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