Question

Bramble Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from Bramble Frosted Flakes boxes and $2. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 809000 boxes of Frosted Flakes and customers redeemed 352000 boxtops receiving 88000 bowls. If the bowls cost Bramble Company $4 each, how much liability for outstanding premiums should be recorded at the end of 2021

Answer 1

Answer: $66700

Explanation:

Number of boxtops that was sold = 809000

Estimated boxtops to be redeemed = 809,000 × 60% = 485400

Less: Boxtops received = 352000

Estimated boxtops not received yet = 133400

The number of boxtops that will be needed per bowl will then be:

= 133400 / 4

= 33350

Therefore, liability for outstanding premiums that should be recorded at the end of 2021 would be:

= 33350 × ($4 - $2)

= 33350 × $2

= $66700