Homework Sourse1 3 points M includes one coupon in each bag of dog food it
1. (3 points) M includes one coupon in each bag of dog food it sells. In exchange for eight coupons, M sends customers a leash. The leashes cost M $3 each. M estimates customers will redeem 45 percent of the coupons. Data for 2014 and 2015 follows:
a. What is M’s coupon/leash premium expense for 2014?
b. What is M’s coupon/leash premium liability at December 31, 2014?
c. What is M’s coupon/leash premium liability at December 31, 2015?
| 2014 | 2015 | |
| Bags of dog food sold | 500,000 | 600,000 |
| Leashes purchased | 18,000 | 22,000 |
| Coupons redeemed | 120,000 | 150,000 |
Solution
Solution A:
Total sales in 2014 = 500000 units.
Coupons to be claimed/ redeemed = 45% of sales(500000u). = 225000 coupons.
Total numbers of leashes to be distributed = 225000/8 = 28125 leashes.
Total expenditure on leashes = 28125 leashes * $3 per leash = $84375.
Solution B:
Total number of coupons to be claimed = 45% of 500000 = 225000.
Total numbers of coupons actually claimed in 2014 = 120000.
Number of unclaimed coupons of 2014 which will be claimed in subsequent year = 225000 - 120000 = 105000.
total number of leashes remained undistributed in 2014 = 105000/8 = 13125 leashes.
Therefore, leashes premium liability on 31st dec 2014 = 13125 * 3 = $39375.
Solution C:
Total number of coupons to be claimed both in 2014 & 2015 = 45% of (500000 + 600000) = 495000.
Total numbers of coupons actually claimed in 2014 & 2015 = (120000 + 150000) = 270000 coupons.
Number of unclaimed coupons of 2014 & 2015 which will be claimed in subsequent year = 495000 - 270000 = 225000 coupons.
total number of leashes remained undistributed on 31st dec 2015 = 225000/8 = 28125 leashes.
Therefore, leashes premium liability on 31st dec 2015 = 28125 * 3 = $84375.
