Question

Milner Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 box tops from Milner Frosted Rakes boxes and $1.00. The company estimates that 60% of the box tops will be redeemed. In 2007, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 box tops receiving 110,000 bowls. If the bowls cost Milner Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2007?
$25,000
$37, 500
$62, 500
$87, 500.

Answer 1

Answer:

$87, 500.

Explanation:

1 Pottery cereal bowl = 3 box tops + $1

60% of the box tops will be redeemed. In 2007

Total sales                   = 675,000 boxes of Frosted Flakes

Estimated to be redeemed = 60% of 675,000 = 405,000  boxes  

Already redeemed               = 330,000 box tops

Outstanding                           = Estimated redemption - Already redeemed

Outstanding                            = 405,000 - 330,000 = 75,000 box tops

1 Pottery cereal bowl              = 3 box tops

Outstanding cereal bowl        = 75,000/3 = 25,000

Cost of cereal bowl                 = $2.50

Monetary compensation         = $1

Outstanding premiums           = 25,000 x ($2.50 + $1)

                                                  = 25,000 x $3.5

                                                  = $87,500

Answer 2

Answer:the answer is 87,500